Bitcoin likely to become niche product – ING economist

20 December 2017 ... min read

20 December 2017

In the long term, bitcoin has little to offer a wider audience and will likely wind up as a niche financial product, says ING economist Teunis Brosens.

ING economist Teunis Brosens

ING economist Teunis Brosens

In an ING report (PDF 0.3 MB) released this month, Teunis argued that actual use of the cryptocurrency will be limited to "tech nerds, people obsessed about their privacy, people afraid of (hyper) inflation of traditional currencies and people wanting to circumvent central banks for ideological or criminal reasons."

Teunis’ comments come amid news that bitcoin prices have surged this year. A single bitcoin was valued at less than USD 1,000 in January and hit a record USD 19,783 last week.

True value

But Teunis questions the true value of bitcoin.

“With the bitcoin exchange rate going through the roof, grandparents are helping toddlers invest in it, and the advent of bitcoin futures further adding to its acceptance, the million bitcoin question is: what is the "true" value of Bitcoin? What can we expect from its future?”

“Our (ING economists) current thinking is one day, beyond the hype, bitcoin will return to being the niche product that it was in its initial years.

“The “true” value of bitcoin depends on its future use case. If users would, en masse, lose interest, then it could end at zero. On the other hand, in the unlikely scenario that bitcoin takes over all worldwide payments, its value could rise beyond USD 1 million.”

Mass audience appeal

In the report, Teunis lists five reasons why bitcoin won’t appeal to a mass audience and argues that even though the crytocurrency world moves quickly, these impediments won’t be removed any time soon. See breakout box.

While casting a critical eye on bitcoin, Teunis was more positive about blockchain saying it is an impressive technology that may bring progress to a variety of fields, ranging from finance to health care, and from notary to voting.

Top-five reasons why bitcoin won’t appeal to a mass audience

  1. Regulation: The decentralised nature of bitcoin is one of its unique features but also its Achilles’ heel.
  2. The lack of an intermediary. The average person doesn’t want to go through all the trouble of keeping their own bitcoin wallets and other safety precautions. Banks are the usual providers of custodian functions preventing loss and theft.
  3. Scalability. Currently, bitcoin is able to process about seven transactions per second. For it to play a meaningful role as a payment system, transaction processing power needs to be 100, maybe even 1,000 times better.
  4. Volatility. For bitcoin to function as a means of payment, it needs to be stable. A world in which your money buys you a large latte today, but only a small espresso tomorrow, is hardly convenient!
  5. Energy use. Bitcoin mining consumes as much electricity as a small country, translating into one transaction taking as much energy as over 200 washing cycles.

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