Is cryptocurrency a financial innovation or a "Ponzi scheme"?

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From a unit price of US$9,000 to more than US$64,000, and then once fell below US$30,000, the cryptocurrency Bitcoin went out of the "roller coaster" market in a year. While "creating wealth" while "cutting leeks", under the appearance of violent fluctuations, what is the true value of Bitcoin? How should we view cryptocurrency?

Many people in the financial industry said that it is difficult to assess whether Bitcoin has actual value. Investing in cryptocurrency faces greater risks, and investors should choose carefully.

What is the value of cryptocurrency

Cryptocurrencies represented by Bitcoin, Ethereum, and Ripple do not have sovereign credit endorsements and are generated through algorithms. Therefore, whether or not cryptocurrency can be called currency is a big controversy in the industry.

Nuriel Roubini, an economist at New York University, said that cryptocurrency does not meet the basic standards of currency and is not a new form of currency. Cryptocurrency cannot even be regarded as an asset, and its value cannot be calculated.

European Central Bank Deputy Governor De Kindos also believes that it is difficult to see the potential value of cryptocurrencies, and market participants should be prepared for further price fluctuations.

In terms of Bitcoin, Guo Jie, chief professor of finance at Durham University in the United Kingdom and executive dean of the China Development Research Institute, said that from the perspective of supply and demand, the rise of Bitcoin has been due to scarcity of total amount and rising demand for some time. However, Guo Jie believes that the Bitcoin value system has not yet been established, and therefore does not fluctuate completely according to the relationship between supply and demand. The traditional analysis framework only applies to commodities that can be clearly valued by investors.

Nomura Research Institute researcher Tohide Kiuchi said that the recent fluctuations in Bitcoin are mainly related to the change in attitude of the American new energy vehicle company Tesla to accept Bitcoin for car purchases. Kiuchi Tengying believes that it is precisely because of the unclear use value that Bitcoin is so volatile.

Is it a new round of financial scams

In the history of finance, scams such as the "Tulip Bubble" and "South China Sea Bubble" have emerged endlessly. Nowadays, cryptocurrencies that are only recognized by a small group of people are speculating at "sky prices." Some people also question whether cryptocurrencies are new financial scams?

Baspan, visiting professor at the National University of Singapore, believes that cryptocurrencies such as Bitcoin were originally intended to attract people who believe in blockchain technology and support the concept of decentralized finance. They are accepted as payment tools in niche communities, but the recent violent volatility of Bitcoin prices has increased. It stems from market hype and more and more speculators join in.

Guo Jie said that Bitcoin's actual application scenarios are very limited, and its price surge is a typical speculative bubble, similar to the Dutch "tulip bubble" in the 17th century, or even a "Ponzi scheme." Guo Jie said that institutions that pursue cryptocurrency are good at using obscure technical terms to persuade investors that this is a revolutionary phenomenon and create a “herd effect” of blind investment in the market.

Hayri Turk, a professor of economics at the Stewart School of Business at Illinois Institute of Technology in the United States, said that cryptocurrency has the characteristics of being free from government intervention and supervision and cross-border convenience, and is sought after by some people. However, careful analysis reveals that this logic that requires constant new investors to increase prices is basically a "Ponzi scheme."

Where is the supervision?

Currency regulators in various countries generally believe that cryptocurrencies use algorithms to hide the identity and whereabouts of users and provide convenience for illegal activities. At the same time, cryptocurrency leverage is extremely high, which brings risks to the financial system.

Santiago Espinosa, an analyst at the market research firm MRB Partnership, analyzed that because the central bank and the government cannot intervene in cryptocurrency transactions, it is difficult to get official support. He believes that the U.S. market regulators will take further measures to continuously monitor cryptocurrencies.

In addition, according to the Japanese website "Yomiuri Shimbun", the leverage ratio of crypto asset trading is high, and while the profits are huge, the risks are also huge. Cryptocurrency transactions that lack real assets as support have shown a "bubble" situation.

The U.S. Department of the Treasury previously stated that the soaring cryptocurrency prices had a negative impact and therefore formulated a new financial account reporting system. Cryptocurrency and crypto asset trading accounts and payment service accounts that accept cryptocurrencies will be included in government monitoring.

In addition to the United States, Japanese and South Korean regulatory agencies have taken measures to strengthen the supervision of financial institutions holding and engaging in cryptocurrency transactions.

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