In a scathing November 26, 2018, blog post titled “I come to bury , not to praise it,” Global Chief Economist Paul Donovan has called for the end of the cryptocurrency bubble. Claiming that bitcoin is in its “death throes,” he attempted to reason that a loss of over 80 percent is “not healthy” for any economic asset.
“Evil Cryptocurrency Bubble”
Donovan said that economists have been predicting a massive collapse of this scale for years, and now it has finally happened. “The failure to balance supply and demand destroys value. Value is being destroyed right now,” he added.
The post continued to describe the cryptocurrency as an “evil bubble” that took money from a large pool of investors and concentrated it in the hands of an elite few. According to Donovan, the change in the distribution of wealth has far-reaching ramifications for everyone that participated in the bubble.
Those that lost money in the process will be forced to spend money differently, causing a “negative wealth effect.” Such individuals will also be affected by loss aversion, which will influence spending habits further down the line.
Donovan claims that Bitcoin was doomed from the start simply because its designers only excelled at math, and appeared to know “nothing about economics.” Ultimately, the end of the cryptocurrency bubble may turn out to be “good news” for those that invested or were considering an investment in the industry. “Getting skilled people to do something useful boosts the economy,” he concluded.
In an interview on CNBC’s Fast Money segment, Donovan was asked why he chose to publish the post at a time when bitcoin was already down 80 percent. He responded:
“To be perfectly honest, I think anyone with a high school education in economics has been a Bitcoin skeptic right from the start. These things were never going to be currencies, they’re not going to be currencies at any point in the future. They are fatally flawed, and as a result, right from the start of the hype late last year, it was fairly obvious that this was going to end badly. Unfortunately, some people who were not protected by any kind of regulation got sucked into the process.”
Moving on to Blockchain Technology
Donovan was then subsequently asked for his opinion on the hordes of people that have migrated from the banking industry to cryptocurrency-related companies and hedge funds in recent years.
He responded that most bubbles tend to attract people with something “new and innovative in terms of technology.” According to him, most people blindly believed in the cryptocurrency ecosystem without having a proper grasp over the technology’s fundamentals and limitations. He added:
“There were a lot of people who perhaps did not fully comprehend what was going on with quantitative policy and thought that printing money would create hyperinflation, even though it does not. It’s creating too much money [that causes this].”
Simultaneously, however, Donovan acknowledged that the underlying distributed ledger technology presents an “economic proposition” and, as such, different from what the cryptocurrency market has to offer. A large number of cryptocurrency skeptics have long held a similar position on blockchain technology, claiming that it can independently exist outside of digital currencies.
The cryptocurrency community on Twitter were quick to retaliate, however. Some users pointed out that institutional support has never been better. At the time of press, the hovers around $4,200.