Durham University Finance Professor Bets on Bitcoin (BTC) Heading Towards Zero
Kevin Dowd, a professor of finance and economics in the Business School at Durham University, believes that Bitcoin is not going to survive. In a recent article released by CoinDesk, he says that the most popular digital asset will still bite the dust.
He started his article explaining that Bitcoin’s mining industry had the industrial structure of a monopoly. That means that it is much more productive and efficient to produce Bitcoin when there is a single company doing it. Because of this, he believes that Bitcoin will not be able to survive in the long run.
Dowd says that he first made that prediction back when Bitcoin was worth $379. Back in December 2017, Bitcoin reached $20,000 and since then it fell down to $3,200. However, he still believes that Bitcoin is not going to survive.
As the professor explains, there are two reasons for this to happen. The first thing is the fact that Bitcoin mining is an industry that created a natural monopoly. This is something that goes against Bitcoin’s main values of decentralization. Furthermore, if there is a market without regulatory entry, inferior products are no able to survive. This is why he says that Bitcoin’s price will reach zero in the long term.
Why Is Bitcoin A Natural Monopoly?
Although Bitcoin mining activities are promoted as something that can be performed by every single individual at their homes, the mining industry is characterized by large economies of scale. Due to the fact that these industries are so large, mining activities became a natural monopoly. This would lead to Bitcoin’s collapse.
Professor Dowd commented about it:
“The implication is that the Bitcoin system is not sustainable. Since what cannot go on will stop, one must conclude that the bitcoin system will inevitably collapse. The only question is when.”
Dowd explains that the first point of failure will be related to the trust people will have with the dominant company in the space. Indeed, the market could eventually have to trust what the dominant firm will do with its power.
Additionally, this company will also threaten anonymity in the space. The company will be forced to impose anti-anonymity regulations to fight against money laundering and other things.
Is Bitcoin An Inferior Product?
The finance professor is sure that Bitcoin is an inferior product and because of this, it will not be able to survive. If this inferior product falls, then its price will be zero in the long term. However, this would happen if there is an absence of regulatory barriers to entry.
According to Dowd, Bitcoin was the first mover and did not have entry barriers. As other companies and projects are also able to create their own products, they will eventually replace Bitcoin. As new projects start developing their own cryptocurrencies, they will be learning from the mistakes made by Bitcoin and improving the flaws that the largest digital currency has, eventually replacing it.
To sustain this claim, he uses data provided by CoinMarketCap in which it shows that Bitcoin’s dominance fell since 2013 until now. Indeed, Bitcoin's dominance moved from almost 95% in 2013 down to 52% just a few hours ago. Now, the market has more than 2000 digital assets and the number could keep growing in the future.
“The innovators – the early movers in a market – rarely survive long-term under conditions of free entry,” he says. “An example is the Ford Model T. This automobile as first produced in 1908 and soon came to dominate the market. But competitors learned from its design flaws and built better cars, which eventually stole its market share.”
According to a recent research paper released by the Federal Reserve Bank of St. Louis, altcoins are affecting Bitcoin prices in the market. As new virtual currencies enter the space, Bitcoin’s market share falls. Due to investors placing their funds in cryptocurrencies, Bitcoin has lost an important opportunity to continue growing as it did during the last years.
At the time of writing this article, Bitcoin is being traded around $3,584 and it has a market capitalization of $62.66 billion.