[2018-12-03] ‘Worthless’ Bitcoin Has Entered Death Spiral: Finance Professor

[Lmaooo]

Earlier this year, with the bitcoin price trading around $7,000, Santa Clara University Professor of Finance Atulya Sarin published an opinion piece arguing that the rising cost of crypto mining, coupled with the ability for bearish investors to short bitcoin in the futures markets, could spell doom for the flagship cryptocurrency. Now, following a further ~45 percent decline, Sarin is calling it: bitcoin has entered a “death spiral,” and it’s “close to becoming worthless.”

Writing in an op-ed published in MarketWatch, Sarin alleged that the bitcoin has embarked on a “swift and painful drop to zero” now that its price has dropped below the estimated cost of mining, which has begun to drive miners out of the market. As the cost of mining decreases, he alleges, so will the bitcoin price.

    “Mining at a cost higher than the cost at which you can sell in the futures market destroys value. So, any rational investor — even one who strongly believes the price of bitcoin will rebound — has no incentive to mine if the cost of mining is higher than the future price and is better off buying in the futures market. And 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.”

Of course, Bitcoin and other Proof-of-Work (PoW) cryptocurrencies adjust mining difficulty dynamically to maintain a consistent issuance rate amid fluctuating hash rates, so while it is true that miners at the margins have begun switching off their machines, it is also true that the hash rate will eventually reach equilibrium with the bitcoin price.

CCN | https://www.ccn.com/worthless-bitcoin-has-entered-death-spiral-finance-professor/

[hatshepsut93]

Stupid FUD. Security-wise, Bitcoin's network is stronger than before, hashrate today is bigger than were it was at the ATH, and bigger than when the price was at $3-4k last time. This "research" is based on a misconception that hash drops cause price drops, but that's wrong, the correlation between hashpower and price is not that strong, there's a big room for flexibility. There will be no death spiral. period.

[Argoo]

Even if the miners stop extracting Bitcoin due to the further disadvantage of this process, I do not think that this will result in the death of Bitcoin. Over 18 million bitcoins have already been mined and they will continue to be in circulation.
However, even suppose that Bitcoin disappears, it will not mean the cessation of the existence of cryptocurrency. However, I do not see any real danger for Bitcoin.

[squatter]

“Mining at a cost higher than the cost at which you can sell in the futures market destroys value. So, any rational investor — even one who strongly believes the price of bitcoin will rebound — has no incentive to mine if the cost of mining is higher than the future price and is better off buying in the futures market.

Why would this matter? Mining costs aren't uniform and difficulty adjusts to unprofitable miners shutting down.

And 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.”

Well that's a moot point since there's no sign that mining activity is stopping.

If gold mining activity stopped entirely, that would imply massive weakness in the gold market. Of course it wouldn't retain its value.

This "research" is based on a misconception that hash drops cause price drops, but that's wrong, the correlation between hashpower and price is not that strong, there's a big room for flexibility.

Logically, hash rate should follow price, but it doesn't do so efficiently. More efficient (cost lowering) hardware is regularly coming online, and some miners will operate at a loss on a speculative basis.

[darkangel11]

Another case of Bitcoin being proclaimed dead. Which one will it be?

We had a similar situation in 2014 with miners going bankrupt and throwing out their mining gear and Bitcoin holding a steady price in Summer and going down again in Winter.
Saying that it's dead now when it's worth more than in 2014 and has wider adoption is stupid.

[stomachgrowls]

Stupid FUD. Security-wise, Bitcoin's network is stronger than before, hashrate today is bigger than were it was at the ATH, and bigger than when the price was at $3-4k last time. This "research" is based on a misconception that hash drops cause price drops, but that's wrong, the correlation between hashpower and price is not that strong, there's a big room for flexibility. There will be no death spiral. period.

You can clearly see that these professionals or experts on crypto does really know on what they are talking about. Correlating hashpower into its price? They are kidding.  
We now hearing up an another word for today "Death spiral". I'll wait for another words came from to these dudes.

[bbc.reporter]

I shake my head. How can a university professor be so negative on the likelihood of success of one of the most major breakthroughs of this century? I reckon he might be one of the less intelligent people of the staff of that university hehehe.

[Poolin_com]

Disagree!
The research, at least the short version provided here, is made from one perspective of bitcoin economical value under the current situation. However, first of all, bitcoin was never the deal of the present, its main value comes from the future investment, of what it will cost in the future, when the number of it will decrees, and, frankly saying, gold is not so convenient to transfer. 
Second, i believe the respectful professor has never traveled or heard the situation in the not so economically or democratically developed countries, in the places as Turkmenistan, as some African countries where the local government does not allow its citizens to go and just buy foreign currency, does not even allow to send money abroad. In that case, i believe the value of the bitcoin does not sound as "Worthless", and surely not "Death Spirally".

[buwaytress]

Oh my god, he's right. $4,000 is close to becoming worthless. Better exit this death spiral and hedge my bets with the ever-powerful US dollar or something. Just as we were thinking these old school economics experts were at least beginning to come to terms with what Bitcoin really is, they come out and make themselves look stupid. Thought these guys were keen to stay in the shadows to toil on their life's work. Now they want to come out and play for their share of the 5-second limelight.

The first and last time hashpower or cost of operation was ever used to determine Bitcoin price was in 2009 when New Liberty Standard set it at US$1 = 1,309.03 BTC.

We've moved on, Mr. Sarin.

[IconFirm]

This guy is a nobody, which is probably why CCN reported it. Here's a snippet from his twatter account:

free image uploader

So, a nobody who has 12 followers is now classed as an expert.......

[hatshepsut93]

Stupid FUD. Security-wise, Bitcoin's network is stronger than before, hashrate today is bigger than were it was at the ATH, and bigger than when the price was at $3-4k last time. This "research" is based on a misconception that hash drops cause price drops, but that's wrong, the correlation between hashpower and price is not that strong, there's a big room for flexibility. There will be no death spiral. period.

You can clearly see that these professionals or experts on crypto does really know on what they are talking about. Correlating hashpower into its price? They are kidding.  
We now hearing up an another word for today "Death spiral". I'll wait for another words came from to these dudes.

This idea isn't new or original, the concept of hashpower-influenced death spiral was here for a while already, but the idea is just ridiculous, it assumes that the market consists wholly of cowards who will sell at the slightest hint of weakness. In reality, there are actually tons of people who see low prices as an opportunity to get huge profits, which is why we so often see very short-lived bottoms.

[aigeezer]

Professor Sarin "has consulted for financial institutions, the Big Four accounting firms, and government agencies in the United States and Canada." Coincidence, no doubt. 

http://www.analysisgroup.com/experts-and-consultants/affiliated-experts/atulya-sarin/

[timerland]

It's complete nonsense. But not surprising honestly, because there has been a ton of people that are simply rejecting the idea of bitcoin altogether and not seeing the potential whatsoever, and trying to mislead others.

If anything, fiat currencies is the most worthless asset class that people are regarding as valuable. Bitcoin has a limited supply, and its function as a global form of money without intermediaries make it valuable.

What we're seeing is a bear market which has happened in the past. I'm not sure why they are calling it a "death spiral". Bull and bear markets occur in all types of markets traded freely, not just BTC. Since bitcoin adoption is still got a long way to go, I believe that a trend reversal is imminent. It's honestly a matter of time.

[onrise]

Everybody is free to say what they feel and those who do not believe in crypto will feel that as market has being falling only so for them it is easy to say it is either bubble or it is near death etc. You need to know based on your research how much opportunity you think exits in this eco system and how much benefit you can take it from this is upto you.

[manfredmann]

Stupid FUD. Security-wise, Bitcoin's network is stronger than before, hashrate today is bigger than were it was at the ATH, and bigger than when the price was at $3-4k last time. This "research" is based on a misconception that hash drops cause price drops, but that's wrong, the correlation between hashpower and price is not that strong, there's a big room for flexibility. There will be no death spiral. period.

It may be true because the market has constantly falling down and it has never been showing a good sign that it could even bounce back to 6K USD. The market price is really not good for the bitcoin holders though some are not interested in the market price movement because they had the ideology on cryptocurrency as more on its use and benefits and the earnings and profit.

[Slow death]

Dr. Sarin has consulted for the Securities and Exchange Commission, Department of Justice, Internal Revenue Service, New York State Department of Taxation and Finance, Massachusetts Department of Revenue, Alabama Department of Revenue, and Canada Customs and Revenue Agency; as well as for numerous firms and banks.

Sarin is calling it: bitcoin has entered a “death spiral,” and it’s “close to becoming worthless.”

this is his opinion, many of these economists are not sincere when they speak, they only speak things that please banks and governments. if bitcoin was something regulated around the world, he would not speak what he said now.

and if bitcoin  it’s “close to becoming worthless.” then we would not have things like:

Confirmed: Nasdaq’s Bitcoin Futures Will Launch in 'First Half' of 2019

Nasdaq Partners with VanEck to Release ‘Regulated, Surveilled’ Digital Assets Products

NYSE Operator’s Bakkt Confirms End of January Launch Date For Digital Assets Platform

[pixie85]

It may be true because the market has constantly falling down and it has never been showing a good sign that it could even bounce back to 6K USD. The market price is really not good for the bitcoin holders though some are not interested in the market price movement because they had the ideology on cryptocurrency as more on its use and benefits and the earnings and profit.

You're a good example of a scared investor who can only see a month back. Never showed that it could go back to 6000? It was there a month ago! A month is nothing in the life of a tradable asset. Market isn't constantly falling down. Do you even know what that word means, because it looks like you don't.

[1Referee]

So, a nobody who has 12 followers is now classed as an expert.......

Nowadays everyone with an opinion is either an expert or a crypto king, lol.

If you look at the article content that news outlets released in the last 1-2 years, it perfectly shows why it has become so truly disappointing. This garbage content is meant to appeal to the hoard of fools chasing hopes and dreams of becoming rich, but end up burning themselves due to their stupidity and greed. In other words, it all comes down to supply and demand.

I like how this market keeps fooling these hillbillies. They feel confident when the price and the hashrate go down during a correction, but hide themselves as soon as everything goes back to normal.

This doesn't seem like someone's opinion, but bitter desire to see something crash because he doesn't like it, or missed out.

[kevoh]

Meanwhile, some of us are not perturbed by these FUD it just presents another opportunity to buy BTC at it's All-time-low.