American finance professor: bitcoin is going through a dead spiral, or is not worth it

Text “mutual chain pulse compiled block white”

Nouriel Roubini: a famous American economist, known as “doomsday”

Mutual chain pulse according to: Recently, Dr. Nouriel Roubini, a famous American economist, forwarded a column on Atulya Sarin, a professor of American finance, on twitter, saying “bitcoin is getting into the helix of death, and it’s going to become worthless.” The market panics are exacerbated by the difficulty of cutting the bitcoin to 15%, and the currency dive. So, how does professor Atulya Sarin explain this point, we might as well look at the text of its column.

A year ago, the mine owners and investors poured into the encrypt banquet, and even a lot of fans clamored for the value of bitcoin to exceed $1 million.

But only a year apart, the enthusiasm of the carnival was quickly extinguished by the brutal reality. In December last year, the price of bitcoin rose to 20 thousand dollars, and with the rapid rupture of the bubble, the transaction price had shrunk by 80% at its peak, far below the support of $6000. Every one of them was lost and wanted to escape.

The value of bitcoin to zero is not far away

In April this year, I had dissected the shortcomings of bitcoin in the MarketWatch column and eventually led to zero value. In the latest article, I also mentioned that this clue has emerged, that distance is not far from being really zero.

So it was said that once the value of bitcoin was lower than the mining cost, it would be a great blow to the enthusiasm of the mine owners, so that bitcoin was trapped in a Death Spiral. If the user maintains a record of how many distributed accounts have lost the support of a mining activity, bitcoin is a set of encrypted numbers that cannot build any ownership, that is, bitcoin will become worthless.

Traditional assets have a set of cash flows, and their value depends on investors’ expectations of these cash flows. But bitcoin has no cash flow, and in a way it’s very like gold. The value of gold is largely influenced by demand and potential use, while bitcoin depends on the cost of mining. It is difficult to accurately estimate the cost of mining in bitcoin, but most people think the cost of each bitcoin is close to $5000.

In addition, bitcoin, like gold, also needs a lot of investment, technology reserves and funds have a big threshold, and the need to participate as many people as possible. Therefore, the value of bitcoin must be close to the full cost of the full use, so that it is appropriate to compensate for your time and capital expenditure. So people want the price of bitcoin to fluctuate in this price range.

There is another complex reason: gold is widely accepted by humans and considered as a value store for many reasons. However, unlike gold, bitcoin is a digital commodity, which is still not widely accepted as a store of value. Although buyers and miners who first poured into bitcoin are really convinced of this paradigm shift and are willing to invest in the necessary returns for the future, it is a greedy speculation that the influx of buyers and miners do not think about it.

The price of bitcoin has soared, and many people thought it was just the sun rising from the horizon, and futures trading appeared. It further stimulates their greed. Because the price of bitcoin was much higher than the cost of mining at the time, they saw obvious arbitrage opportunities: digging bitcoins and selling at higher prices in the futures market to ensure arbitrage profits.

The operation is not surprising, with traditional investors hoarding bitcoin by mining business to expect to sell at a higher price in future futures markets. As more and more arbitrage flows into the market to make profits, it is hoping to take advantage of this opportunity to reduce the price of bitcoin to their mining cost range and try to maintain a stable price for a long time. It also changed the miners’ role, and the miners who have higher assets now want to cut meat and return to their blood, and once the opportunity vanishes, they will disappear.

But the cost of bitcoin mining is not fixed. There is a feedback mechanism for any commodity that is applied to bitcoin: with the increase in the value of bitcoin, new miners enter the market, because their rewards are shared by more miners and need to increase the effort needed to exploit bitcoin. In the same way, with the decline in bitcoin prices and the withdrawal of miners, the cost of mining will fall. However, the number of miners should not be lower than a certain level, or it will not provide the collapse of the bitcoin block chain that can be calculated for the maintenance of classified accounts.

The cost of mining is higher than the transaction price, and it will surely destroy the value. So including those who think the price of bitcoin will rebound, the consensus of all rational investors is that once the cost of mining is higher than the future price in the futures market, there is no incentive to continue digging. Unlike gold, even if mining behavior stops gold, it keeps its value; however, bitcoin will become worthless because there is no mining activity to maintain the number of distributed accounts. If there is no mining activity, bitcoin is only a set of worthless encrypted numbers.

Helix of death

As a result, bitcoin seems to be entering the Death Spiral in the economics category. If the price continues to fall and exceeds the scope of the cost of mining (the cost of mining is reduced in algorithm, but the actual cost may not be reduced), then the bitcoin will soon be worthless.

Proponents of bitcoin may argue that the price of bitcoin has also experienced a big adjustment. But there are three significant differences in the recent collapse. First of all, compared to the recent decline, the past decline is completely witchcraft. Second, the victims of the recent fall are new investors, and they may cut the meat out until the bitcoin situation becomes clearer. Third, the introduction of the futures market completely subverted the bitcoin market, allowing miners to estimate mining losses and profits from the beginning. If the sale price of the futures market is lower than my mining cost, why do I continue to dig in the case of a clear loss?

Perhaps many people argue that the value of bitcoin turn to zero is extremely extreme. After all, in human history, the tulip bubble still has $10 at a time when the tulip bubble burst; Beanie Babies still has a $5 price.

As far as it is concerned, the bitcoin economy still exists. Many people still use encrypted currency on block chains for daily transactions. In fact, the world may always thank Zhong Bencong (Satoshi Nakamoto) for providing us with the encrypted currency, but the future bitcoins may not exist. Future encrypted currency will extend in a new direction, even the government will issue encrypted currency. In the long river of history, the number of companies that eventually went bankrupt was innumerable, and “me-too” was the best investment.

After all, I can still give my wife a bunch of tulips; I can still play with my grandchildren to play with peas, which makes them happy. But how do I deal with a number of figures that I can’t prove?

A brief introduction to the author:

The author of this article, Atulya Sarin, is a professor of finance at the University of Santa Clara. In his sixth edition of the foundation of Multi Country financial management, the topic of currency was discussed in depth. And he has a good reputation as an expert in evaluation.

The source of the article is “mutual chain pulse”, the original link:, reprint please indicate the source!

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