Bitcoin has been called many things—digital gold, a revolutionary financial asset, and even the future of money. But could it also be worthless in the long run? Nobel Prize-winning economist Eugene F. Fama, known as the "Father of Modern Finance," believes Bitcoin is destined to go to zero.
Despite Bitcoin’s soaring market capitalization of $2 trillion as of late 2024, Fama argues that its value is based purely on speculation rather than intrinsic worth. His prediction has reignited the debate on Bitcoin’s long-term viability, with some experts agreeing and others insisting that Bitcoin is here to stay.
In this article, we explore Fama’s reasoning, the counterarguments, and whether Bitcoin’s future is truly at risk.
Why Fama Predicts Bitcoin Will Be Worthless
Eugene F. Fama, a champion of the Efficient Market Hypothesis (EMH), believes that for an asset to maintain long-term value, it must generate some form of return—whether through dividends, cash flow, or tangible utility. In his view, Bitcoin fails this fundamental test.
1. Bitcoin Lacks Intrinsic Value
Unlike stocks, which represent ownership in a company, or bonds, which offer interest payments, Bitcoin does not produce anything. Its price is purely driven by demand, which makes it susceptible to extreme volatility and speculative booms and busts.
2. Volatility Makes It an Unstable Store of Value
Bitcoin’s price history is filled with dramatic rises and crashes. While some investors see this as a sign of a young, growing asset, Fama believes it indicates an unstable market. A store of value should maintain purchasing power over time—something Bitcoin has struggled to achieve.
3. It’s More of a Speculative Asset Than a Functional Currency
Bitcoin was initially designed as a decentralized, peer-to-peer currency, but few people actually use it for transactions. Instead, most investors treat it as a speculative asset, hoping its price will rise. Fama warns that if Bitcoin loses its appeal as an investment, there will be no fundamental reason for it to retain value.
Could Bitcoin Defy Fama’s Prediction?
While Fama’s skepticism is rooted in financial theory, many experts believe Bitcoin has enough momentum to survive long-term. Here’s why some disagree with his prediction.
1. Growing Institutional Support
Major financial institutions, including BlackRock and Fidelity, have embraced Bitcoin as a legitimate asset class. Even former critics like Larry Fink and Ray Dalio have reversed their stance, suggesting that Bitcoin’s role in the financial world is evolving.
2. The Scarcity Factor: Bitcoin as “Digital Gold”
Bitcoin’s fixed supply of 21 million coins is often compared to gold, which has been a store of value for centuries. Advocates argue that as governments continue to print fiat money, Bitcoin’s scarcity will make it increasingly attractive.
3. Its Role in Financial Freedom
In countries with unstable economies or authoritarian governments, Bitcoin provides an alternative means of saving and transacting outside of traditional financial systems. This use case, while niche, highlights its value beyond speculation.
Challenges That Could Hurt Bitcoin’s Future
Even if Bitcoin doesn’t go to zero, several factors could hinder its long-term adoption.
1. Energy Consumption Concerns
Bitcoin mining consumes around 91 terawatt-hours of electricity per year—more than some nations. Critics argue that this makes it an unsustainable technology, while supporters claim that mining is shifting toward greener energy sources.
2. Government Regulations
Many governments are tightening regulations on cryptocurrencies. While some regulations provide legitimacy, overly strict laws could limit Bitcoin’s accessibility and adoption.
3. The Paradox of Lobbying for a “Decentralized” Asset
Bitcoin was created to operate outside government influence, yet its advocates spend billions lobbying for favorable regulations. If Bitcoin requires political approval to thrive, does it truly remain decentralized?
Conclusion
Eugene F. Fama’s prediction that Bitcoin will go to zero is based on the idea that it lacks fundamental value beyond speculation. However, Bitcoin has defied skeptics before, with growing adoption among institutions, investors, and even governments.
Will Bitcoin ultimately collapse, or will it continue evolving as a legitimate financial asset? The answer remains uncertain, but for now, Bitcoin remains one of the most debated and closely watched financial innovations of the modern era.
FAQs
Why does Eugene F. Fama think Bitcoin will be worthless?
He believes Bitcoin lacks intrinsic value, functions primarily as a speculative asset, and is too volatile to serve as a stable store of value.
What arguments suggest Bitcoin won’t go to zero?
Institutional adoption, Bitcoin’s scarcity (21 million supply), and its role in financial freedom are key reasons why some experts believe it has lasting value.
What risks could hurt Bitcoin’s future?
Energy consumption, government regulations, and potential loss of investor confidence could threaten Bitcoin’s long-term survival.
Is Bitcoin truly decentralized if it requires lobbying efforts?
Bitcoin’s original goal was to operate outside government influence, but the crypto industry spends billions lobbying for regulation, raising questions about its decentralization.