Kevin Dowd is professor of finance and economics at Durham University and partner at Cobden Partners. In an op-ed on City A.M., titled “Bitcoin is bust: Why investors should abandon the doomed cryptocurrency”, he slams Bitcoin and predicts its value will crash to $0. Today, he is giving a talk, “Bitcoin will bite the dust” at the 32nd Cato Annual Monetary Conference, Alternatives to Government Fiat Money, at the Cato Institute in Washington, DC.
His first argument does not concern the raw economics of Bitcoin. Instead, he focuses on the centralization of bitcoin mining. While it is good for an economy to leverage economies of scale, the bitcoin economy of transaction processing is threatened by the increasing trend of aggregation into a single pool:
“There will then be no point in using bitcoin anymore: if you have to rely on a big mining pool to keep its promises, then you may as well use PayPal instead.”
He points to GHash as an example. Even without GHash, he argues, the tendency toward a single monopoly will eventually prevail- despite the “self-restraint thanks to a shared belief in bitcoin idealism” exercised until now.
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With the system now reduced to a point where it relies on the trust of a few big players, his second point delves into its fundamental value. Assets than have been analogized to bitcoin, such as gold or tulips, at least possess innate value:
“And so the whole bitcoin system eventually becomes a house of cards, and anything – a scandal, a government attack, whatever – could trigger a loss of confidence leading to a run that brings it all down.”
He adds that if so many of the altcoins have declined to practically zero, Bitcoin should be no different. “There will be a stampede for the exit, the price of bitcoin will drop to its intrinsic value – zero – and the system will collapse….The only question is when.”
Interestingly, Dowd’s firm specializes in helping “nations whose banking systems have either collapsed or are in great difficulty.” Front and center on the firm’s homepage is a quote from Simon Johnson, former Chief Economist of the International Monetary Fund (IMF): “The Finance industry has effectively captured our Government… recovery will fail unless we break this financial oligarchy.” Bitcoiners may challenge Dowd as to what monetary system he believes in.