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Bitcoin is worthless, bubble may pop soon, Allianz Global says

Group says cryptocurrency does not generate any income stream.

It’s a matter of when, not if, the Bitcoin bubble will pop, according to Allianz Global Investors.

The cryptocurrency is worthless, even if blockchain technology could bring significant benefits to investors, said the investment arm of Europe’s biggest insurer, which manages almost 500 billion euro.

“In our view, its intrinsic value must be zero,” Stefan Hofrichter, the company’s head of global economics and strategy, wrote in a recent web post. “A bitcoin is a claim on nobody – in contrast to, for instance, sovereign bonds, equities or paper money – and it does not generate any income stream.” Bitcoin, cryptocurrency 

While one could make the same argument about gold, the yellow metal has been widely accepted as a store of value for more than two-and-a-half thousand years — compared to less than a decade for Bitcoin, he said.

Textbook case

In addition, the world’s largest cryptocurrency “ticks all of the boxes” of the essential criteria for any asset bubble, including overtrading, “new-era” thinking and rising leverage, he wrote. Bitcoin mania is a textbook-like bubble, “one that is probably just about to burst.”

Hofrichter joins a chorus of commentators casting doubt on the underlying value of the digital currency. University of Pittsburgh researchers concluded it’s “an asset which has no value by traditional measures” and economist Nouriel Roubini called it the “biggest bubble in human history.”.

Bitcoin traded 0.7% higher at $9 126 as of 2:45 pm Tokyo time. It pared an advance of about 2% after Google announced it would ban online advertisements promoting cryptocurrencies and initial coin offerings starting in June. The digital currency has more than halved from its December peak.

Read: Google to ban cryptocurrency, initial coin offering ads

Still, the bursting of the Bitcoin bubble won’t have a large impact on conventional asset classes such as stocks and bonds, according to Hofrichter.

“Bitcoin’s demise would have few spillover effects on the ‘real world,’ since the market for this cryptocurrency is still quite small in size,” he said. “As a result, we believe that the risks to financial stability stemming from bitcoin are negligible — at least as of today.”

© 2018 Bloomberg  

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I agree that bitcoin is worthless, but is is still more valuable than a dollar.

What is the income stream of a USDollar and what can you claim in exchange for a Dollar? A dollar used to be a claim on gold before 1971, but the Nixon Shock ended the convertibility of the dollar for gold. So, the dollar is now a claim on another dollar or euro or yen, that are all claims on nothing.

Then we go further to assess the income stream of a dollar. You can deposit your dollars at the bank and receive interest on it. The income you receive is way below the longer-term rate of inflation as described by the 30 Year US Treasury Bond yield. This implies that the income stream is negative in real terms. In other words you pay to own dollars.

So please explain to me in what way a dollar is more valuable than bitcoin, even if bitcoin is worthless.

Of course, When something like the price of bitcoin goes up really really fast over a short period of time, this is largely due to FOMO hype and its only a matter of time before it has a corresponding correction. This is a recurring bubble hype cycle that bitcoin has.

But, who is to say that the US Dollar is not the one in a bubble?

There will never be more than 21 million bitcoin, and the monetary base of bitcoins cannot be expanded therefore it is deflationary, and encourages saving. The USD is inflationary, and you are encouraged to spend your money as it will be worth less in the future as you lose value. The bitcoin supply is controlled and measured and its possible to know how many bitcoin there are now or on any date in the future. Can you do that with USD? Nobody even knows how much USD there is in circulation.

There is a growing number of people who are buying bitcoin not because of FOMO or to ‘get rich quick’, but as a hedge against the dollar, or to move value out of USD. What a bitcoin is worth is also a reflection of the devaluation of USD. Why would you save in USD if the value continues to go down over time vs bitcoin that is designed to go up in value over time?

People find being able to move value almost instantly to anywhere in the world without going through a bank and paying their fees and having their restrictions valuable. Moving a billion dollars worth of bitcoin or 1 Dollar worth is exactly the same, and about as complicated as sending an email. Bitcoin has value because its scarce, and useful, and works better than regular banking and money in many instances.

Bitcoin has had and will have plenty more hype cycles, where it shoots up in value and then has major corrections. When it goes up super

fast, it also comes down fast, but often the highs are higher, and the lows are higher too. This means it is generally extremely volatile in an upward trajectory.

In January 2019 bitcoin will be a decade old. Let that sink in. The only reason people are starting to hear about it more and more now, is because it continues to prove itself and make headlines.

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