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One of the world’s most renowned historians says many Bitcoin boom and bust cycles are coming, and critics of the largest cryptocurrency will ultimately be proven wrong.
In a new interview on the Unchained podcast, Niall Ferguson says he believes BTC will emerge as a mainstream store of value akin to gold.
Ferguson, a senior fellow at the Hoover Institution, says Bitcoin will ultimately prove itself as a hedge against reckless monetary policies.
“The obvious argument for something like Bitcoin is that you are creating at least a store of value. Maybe not a particularly efficient means of payment, but a store of value that you will be able to rely on even if the Argentine government or the Zimbabwean government or the Venezuelan government decides to crater the currency with extremely reckless time-inconsistent monetary policies.
The second point to notice, which is generally missed by the people I know in the crypto community, is that the argument that you’re solving the problem of inflation works much less well in the developed world because, in truth, countries like the United States, most European countries and Japan ceased to have a problem with inflation some time ago.
The inflation spike was in the first decade of fiat money in most of those countries. Since the beginning of this century, the problem has in fact been deflation, not inflation. And the recurrent headache of central banks, first in Japan and then in the United States and Europe, was that they couldn’t in fact keep the inflation rate in positive territory. That became acutely scary after the 2008 failure of Lehman Brothers because it seemed as if the world was going to be plunged into a second great depression with debt deflation driving us into a dire tailspin as in the 1930s, and the central banks had to work extremely hard to avoid that by using all kinds of unconventional monetary policies.”
Ferguson says he can guarantee another Bitcoin bull run is coming, with Bitcoin’s trademark volatility set to continue in a series of bubbles.
“What you’re seeing when Bitcoin’s price fluctuates wildly, as it’s done in the last five years, is not variations in the supply of US dollars. These are fluctuations in the expectations of investors about the future of Bitcoin and, as we all know, those fluctuations have been enormous because there’s great uncertainty about the future of Bitcoin.
It only seems like the other day that an influential economist, Nouriel Roubini, was calling Bitcoin a shitcoin and predicting that it would go to zero. It’s not that long ago that the Nobel Prize-winning economist and New York Times columnist Paul Krugman was dismissing Bitcoin in much the same way that he once dismissed the internet as a kind of nothing burger.
And so there’s all kinds of confusion, uncertainty and downright error about the future of this particular instrument, and that’s why we will have another Bitcoin bubble at some point. I can guarantee that. And during that whole cycle – which will be what, the fifth? I’ve lost count of the big Bitcoin bubbles there have been. There will be the same debate that we had back in 2017 between the people who say it’s going to the moon and the people who say it’s a shitcoin, it’s going to zero. And both of these views will be wrong.
Over time, I think Bitcoin will cease to behave like an option. I think it behaves like an option on digital gold right now – a term that I owe to my friend Matthew McLennan at First Eagle. Gradually, over time, the longer it survives and the more useful it appears to be, Bitcoin will behave less like an option on digital gold and more like digital gold.
I take the view, and I’m probably going to annoy a majority of listeners now, that Bitcoin isn’t going to become money in the sense of the means of payment. I think Bitcoin is a peculiar kind of digital gold that people will want to hold in their portfolios because it has behaved different from other asset classes, and it’s not closely correlated with them. And I think the more people who take the view that Bitcoin will live, that Roubini is wrong, the more people that will hold it in their portfolios – and that’s a preference for Bitcoin as an asset with diversification quality – will push up its price. It’s price will not go up gradually. It will go up in steps and each step will look like a bubble. And each time the bubble bursts, Nouriel Roubini will say, ‘You see? You see?’ And each time he will be wrong.”
Ferguson isn’t offering any predictions on exactly when the next Bitcoin bull run will begin.
However, in the short term, he says global events such as increasing tension between the US and China, as well as internal political turmoil in the US, could be catalysts for a rise in the price of BTC.
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