Kenneth Rogoff: "Crypto Fool's Gold?"

The Harvard economist Kenneth Rogoff bit into Bitcoin in his latest analysis for Project Syndicate. Rogoff is skeptical on Bitcoin, with his usual stance on upward trends.

"My best guess is that in the long run, the technology will thrive, but that the price of Bitcoin will collapse."

Rogoff believes the future of Bitcoin depends on government regulation and whether governments would tolerate large-scale movement of funds through Bitcoin.

"In principle, it is supremely easy to clone or improve on Bitcoin’s technology. What is not so easy is to duplicate Bitcoin’s established lead in credibility and the large ecosystem of applications that have built up around it."

Currently, Bitcoin proves its credibility by increasing its dominance over the cryptocurrency market. Bitcoin represents 52.4% of the market capitalization for all cryptocurrencies, up from 47% during the summer months. The influx of funds is happening ahead of a blockchain split that would create two versions of Bitcoin. But Kenneth Rogoff does not seem to be aware of the conflicts within the Bitcoin community and how the technology would change.

The analyst's main concern with Bitcoin is related to criminal activity:

"But it is folly to think that Bitcoin will ever be allowed to supplant central-bank-issued money. It is one thing for governments to allow small anonymous transactions with virtual currencies; indeed, this would be desirable. But it is an entirely different matter for governments to allow large-scale anonymous payments, which would make it extremely difficult to collect taxes or counter criminal activity."

Rogoff believes Japan is being too friendly to Bitcoin transactions.

"...One can be sure that global tax evaders will seek ways to acquire Bitcoin anonymously abroad and then launder their money through Japanese accounts. Carrying paper currency in and out of a country is a major cost for tax evaders and criminals; by embracing virtual currencies, Japan risks becoming a Switzerland-like tax haven – with the bank secrecy laws baked into the technology."

It is also possible that a central bank would create its own virtual currency, which would be legal. But a government-based virtual currency would only offer better security – not anonymous transactions or easy global transfer of funds. So it would never duplicate the exact conditions in which Bitcoin was adopted.