Racing Towards A Financial Doom: Eugene Fama’s Take On Crypto

Nobel Laureate Eugene Fama is a pioneer in efficient market hypothesis. Therefore, it raises concern when he shares a bold statement about the currency’s dwindling valuation. In a recent press release, Fama stated that crypto would slowly lose its valuation in the next decade. 

This hypothesis has put people on edge since the crypto market is already in a downward spiral post-Trump’s controversial tariff regulations. Since last weekend, BTC and other coins like Ethereum, Dogecoin, and other meme coins have dipped sharply.

Eugene Fama shared his opinion on a podcast named Capitalism, hosted by Luigi Zingales and Bethany McLean. According to Fama, “Cryptocurrencies are such a puzzle because they violate all the rules of a medium of exchange… They don’t have a stable real value. You know, they have highly variable real value. That kind of medium of exchange is not supposed to survive.” 

Therefore, it is apparent that Fama’s skepticism is rooted in how crypto coins are formed. However, he did backtrack and said that the timeline of the potential collapse might be murky as crypto is very unpredictable.

Monetary Theory’s Future 

Fama believes that the collapse of crypto is inevitable and necessary. He maintained that crypto is an aberration in the grand monetary matrix. In other words, the existence of something as variable as crypto changes or challenges the very money theory that exists.

He stated that he is hoping cryptocurrencies to bust. Otherwise, economists might have to reframe the money theory and how the market performs. This is a tall claim, but coming from Fama, it should be taken seriously.

Technical Challenges 

One of Fama’s biggest argument points was the fundamentals of blockchain technology. He pointed out that blockchain is a glorified digital ledger. He stated that this whole market is energy-driven. Therefore, there is a huge question of sustainability.

Subsequently, Fama explained that anything digital, such as blockchain, is easily corruptible. Fama states, “There are always incentives for people to corrupt the blockchain… You can have more and more people entering whose sole purpose is to corrupt it. And if they can bring together enough computing power, they can bring it down.”

Regulatory Interventions 

Fama also argued that government intervention is also inevitable. Fama believes that the government will intervene as crypto blows up. This intervention would impede the rocket growth of these digital currencies.

However, Eugene Fama also suggested that there is a possibility that Bitcoin and the entire movement will eventually get separated from traditional trading. As a result, it might form into a completely different movement with its own set of rules.

The End: Looking Ahead

Ultimately, Fama agrees that this is merely a prediction and that nothing can be said conclusively. This is primarily because crypto is still in its infancy. As a result, predicting its future will be counter-productive.

Currently, Fama believes that crypto is still one of the risky investment opportunities. As a result, only time will tell if the status quo of digital currency changes.