Critics of Bitcoin’s “one-percenters” remain bullish on the future of digital assets
A future without digital assets is hardly conceivable, but Bitcoin (BTC) is far from perfect in design, according to a finance professor at the London School of Economics (LSE).
LSE finance professor Igor Makarov believes that digital money and digital assets will undoubtedly be part of the future of finance, and their effectiveness will depend a lot on their design.
In an interview with Cointelegraph, Makarov said that there has not been much evidence that Bitcoin can become a store of value as it has been extremely volatile over the past 10 years.
Since Bitcoin’s volatility remains high despite its massive appreciation and increased liquidity, there is no guarantee that its price will one day become more stable, he said.
“With no government backing Bitcoin, the cryptocurrency’s value depends on the public’s willingness to hold it, which in turn depends on changing investor sentiment and its position against other cryptocurrencies,” Makarov said.
The professor also surmised that allowing US public institutions to invest in BTC would almost certainly result in a “temporary price spike.” However, this valuation will mean early adopters benefit “at the expense of the general public” and other stores of value, especially fiat currencies, Makarov said, adding:
“Since Bitcoin is an unproductive asset – given its current design – returns come solely from price appreciation, and in the long run we should not expect them to exceed the growth rate of aggregate output.”
Makarov is known for co-authoring a study that claims 10,000 Bitcoin investors, or 0.01% of all BTC holders, own 5 million BTC, which is 25% of all mined 19.1 million bitcoins currently is in circulation. The analysts claimed that top BTC holders control a larger share of crypto than the richest Americans control dollars.
According to Makarov, the study is based on Bitcoin network data as well as public data from blogs, chat forums and others. “We also use Bitfury Crystal Blockchain information on the identity of large public entities such as exchanges, electronic wallets,” he noted. Makarov also said that very few individuals in the US have large amounts of cash as the majority of their wealth is held in real estate and securities, adding:
“Cash transactions can be difficult to trace, but unlike Bitcoin transactions, the cost of cash transactions increases with the amount transacted. It is also expensive to store large amounts of cash.”
Despite being skeptical of Bitcoin’s design, Makarov remains bullish on the future of digital assets. He has been involved in arbitrage and trading in crypto markets since 2016 and became excited about the economic applications of crypto and blockchain, working on many related projects, including the investigation of the Terra ecosystem crash.
Related: Hodlers and Whales: Who Owns the Most Bitcoin in 2022?
“I find many developments in the crypto space fascinating. They start with Bitcoin and its ingenious design and include many others, including smart contracts, oracles and others,” Makarov said. But in order to benefit from the industry, it is important to address issues such as governance, regulation and others in the right way and in time, the expert emphasized and stated:
“There is little doubt that in the future we will have digital money and digital assets. Their effectiveness will depend on their design. That’s why it’s important to get it right.”
Makarov said he does not have any cryptocurrencies at the moment.
