‘Regulation may be the only future for Bitcoin’ - Steve Keen
Bitcoin has begun trading on the Chicago futures exchange with many seeing it as a major step in legitimizing the cryptocurrency.
This month the value of bitcoin topped a record $19,000. And there are now such things like crypto-collectibles, for example, CryptoKitty. It’s a trading game on ethereum, that allows players to trade and breed their digital cats. Reportedly, one digital cat was sold for more than $110,000 this month.
RT spoke to Steve Keen, Head of the School of Economics, History and Politics at Kingston University in London to discuss the recent developments with bitcoin cryptocurrency.
“Intriguing thing about that is that it is good for people on the sell side of bitcoin. As one of the commentators said recently, one of the reasons the process has been escalating so much …is that there is enormous pressure on the buy side of bitcoin and there are almost no sellers. Because, of course, the sale at the moment involves forgoing a probable capital gain, so nobody wants to sell right now, everybody really wants to buy in,” Keen told RT.
“But once you have a futures exchange, people can take up positions, put and call positions, all sorts of strategies, which can mean there will be an increase in the sales pressure and with that case there will be a dramatic drop in the price," he added.
According to Prof Keen it is becoming obvious in the use of bitcoins now that you can’t be independent of regulation, particularly when “intelligent fraud” can’t be ruled out.
“You can’t be deregulated in a system where there will be criminal attacks. The code itself is clearly not foolproof, people will find their way in, forks will be forced upon them, whether they want them or not. In that situation, regulation may be the only future,” he said.
"The whole idea that you can be a separate financial eco-system, which I think is the part of fantasy behind the formation of bitcoin, is now getting the part of reality, that you part of that inter-linked system – whether you want to be or not. Therefore you can be hit by what happens in other markets; you are not immune to having short squeezes, bears move in and drive the price down. All these sorts of effects are there, they are not unavoidable,” he said.
Keen said that he is still not convinced by any names that bitcoin would work as a transactions service “which ultimately it has to be to become a rival to cash”.
“And when it does that, my feeling is that the fundamental reason for using bitcoins as opposed to the mining will cause the price to plunge dramatically."
Apart from bitcoin, other cryptocurrencies like ethereum, IOTA, ripple, litecoin are gaining popularity.
Even digital cats are being traded for more than $120,000 in a game based on blockchain technology.
“There are so many of these being originated because one of the analogies behind bitcoin would be “gold” because there’s only about 21 million bitcoins. But of course, there could be 21 million variations of bitcoin. And we are seeing it happening right now,“ Keen explained.
“And a lot of what happens really reminds me…of the experience with the South Sea Bubble where initial expectations of profit from trades in the Caribbean led to dramatic increases in the price of the South Sea corporation. And then a whole range of spinoffs occurred which promised enormous returns even greater than the South Sea’s bubble,” he recalled.
“People poured money into ventures like that and of course the whole thing came crushing down,” he said. “So it really does feel like a classic speculative mania to me.”
According to Keen, the problem with bitcoin is that “as a distributed ledger, there are so many copies and so many communications needed that the speed of transactions has been critically slow.”
“But the blockchain technology could be used by trusted party like a central bank to produce digital money which could be then given to everybody in the county. At the moment central banks only inter-react with the banking system and some nonbank financial institutions. And suddenly, central banks could interact with us directly. And that to me would be a means by which we could use the digital currencies to cancel the excessive level of credit created money which has been caused in the private debt bubbles. That’s probably the major innovation; central banks taking on blockchain technology producing digital currency and giving us all a bank account at the central bank which could be used as a way of bringing about the people’s quantitative easing.”