Kenneth Rogoff says bitcoin bubble will pop, if there is no final use case

February 19, 2021

Bitcoin recently hit a record high of $52,640 and the cryptocurrency has surged roughly 78 percent so far this year. The reason behind the rally has been attributed to growing interest in the digital currency from institutional investors. However, some analysts have warned that the rally might be unsustainable.

One such person is American economist and Harvard professor Kenneth Rogoff, who in an interview with CNBC-TV18 said that the current zero interest rates on bitcoin are producing funny asset valuations.

"Zero interest rates can produce a lot of funny asset valuations. So that is certainly part of it. Clearly there are a lot of wealthy people and well known financiers, often very senior, who publically said they are investing in it [bitcoin] and that has given [the cryptocurrency] confidence. But I have to say, regulations in its early innings – if there is no final use case for bitcoins, ultimately this bubble will pop, but it could take a decade."

Bitcoin is an asset class in away modern art is

To illustrate his point further, Rogoff, who is a chess grandmaster, said that bitcoin currently is like modern art as an asset category.

"Right now it is an asset class and I suppose in the way modern art is, but it doesn’t necessarily mean that it is in the mainstream. I think that is extremely misleading. Central bankers will never ever allow that," Rogoff said.

"I don't think regulating it is all that difficult. I think that there has been a hesitation to move too quickly because there has been a lot of innovation in the cryptocurrency space and the government want to allow that to proceed. But make no mistake, the governments need to retain control over taxation, controlling crime, etc. they need to maintain control over the unit of account -- the currency. Yes, private innovation can come out for a while, but eventually over the long course of history, the government first regulates and then it appropriates and I think we can see that happening," he added.

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