Atulya Sarin – Professor of Finance at California’s Santa Clara University – this week predicted that bitcoin was “close to becoming worthless” and was now in its death throes. Professor Sarin claimed earlier this year, when bitcoin was enjoying a value of more than $6,500, the spiralling cost of mining the currency was eroding the prospect of cryptocurrency playing a major role in the future of world finance. He also argued that the tactic of shorting the unregulated market by bearish investors would put bitcoin on an irreversible path to destruction. With the currency struggling below $4,000,Professor Sarin has now reignited the debate, arguing that bitcoin is on course for “a swift and painful drop to zero”.
Professor Sarin is pointing the finger squarely at miners who are being forced to pack up their operations due to the low values of bitcoin (it is widely estimated that it costs around $5,000 to mine a single bitcoin) making their endeavours almost worthless.
He said in his Marketwatch column: “Unlike gold, which can retain its value even if mining activity stops, bitcoin can have no value absent the mining activity that maintains the ledger of who owns it.
“Absent the mining activity, bitcoin is a just a set of encrypted numbers with no value.
“Many will argue that bitcoin becoming truly worthless is extreme.
“Sure, looking at some memorable fads and bubbles, tulips still trade for $10 a bunch and Beanie Babies are fairly priced at $5.
“I can still give my wife a bouquet of tulips and make her happy.
“And I can still give Beanie Babies to my grandchildren to play with.
“But what am I going to do with a set of numbers that I cannot prove makes me an owner of anything?”
Rather than being laughed off or dismissed, Professor Sarin’s inflammatory assessment was actually embraced by one of the world’s leading crypto analysts who suggested the Leavey School of Business professor’s words should be viewed as a “welcome question” about how to improve bitcoin.
Speaking to Express.co.uk, eToro’s senior market analyst – Mati Greenspan – said it would be easy for crypto enthusiasts to wave Professor Sarin’s claims away as wild speculation.
Instead, the Israel-based expert suggested the question could be used to improve bitcoin.
He said: “Look, put it this way, this bitcoin death spiral concept is nothing new, and many people have had the same theory for years.
“The theory is, basically, if you have a sudden drop in hash rate it will drive the miners away meaning no one would mine bitcoin any more and no transactions would ever be made.
“But that’s just nonsense, and it’s an easy way of attacking bitcoin while it’s down.”
Mr Greenspan explained that any loss of miners simply makes mining bitcoin more profitable for those who continue.
He added: “The pie always remains the same size – one block produced every ten minutes or so – regardless of however many miners there are.
“But we shouldn’t laugh at Atulya Sarin because bitcoin goes through cycles and we can all increase our knowledge of every aspect of that cycle while people like this raise excellent questions about bitcoin.
“The most important thing we can do is find answers to these questions so that when it comes up again in a few years – which I guarantee it will – we have a very good answer at the ready.
“I’m well aware that Professor Sarin’s theory is designed to be provocative and support his own thoughts on bitcoin but he is – perhaps inadvertently – giving us the tools to make bitcoin even better.”