Jeffrey Dorfman, a professor of economics at The University of Georgia, has expressed his opinion on Bitcoin in his article for Forbes Magazine. The value of world’s most popular cryptocurrency increased by 140% over the last year and 49% in April 2017. According to Dorfman, high volatility of the digital currency turns it into a speculative asset, not a currency.

The factors that are keeping Bitcoin from being considered a plausible currency are low transaction speed and constantly changing value.

Bitcoin value fluctation

Dorfman claims that the importance of each currency is based on its ability to preserve the value, making it an appealing investment. Especially in the developed countries, people like to know the potential return rate of their investments. Never-ending Bitcoin price swings make it hard to come up with an investment prognosis. Not many of us are ready to invest in an asset with such an unstable value.

Dorfman noted that over the last month, Bitcoin price has changed up to 3%, the average being 2%. Meanwhile, U.S. Dollar and euro exchange rate was as high as 1% and only changed 3% for the entire month. Such uncertainty when it comes to Bitcoin value forces a number of potential investors to turn down the cryptocurrency with volatility of nearly 50%.

As to Bitcoin low transaction speed, Dorfman explains that it has something to do with blockchain, the underlying technology behind the cryptocurrency. To maintain secure transactions, the number of daily transactions remains limited. Big part of the community is against changing the protocol in order to increase the speed. Users value their anonymity way too much to approve such changes.

That being said, lowering security risks also lowers Bitcoin attractiveness for investors, claims Dorfman. And that’s why the expert believes that Bitcoin makes a much more successful speculative asset than a currency. As of now, Bitcoin is widely used for trading.

Bitcoin as speculative asset

 

Dorfman recognizes that speculation itself has a certain value, affecting market liquidity and resulting in market value for each commodity asset. Nobody buys Bitcoin for the sake of owning Bitcoin, like it happens, for example, with gold or gemstones. Bitcoin is incredibly popular on black market. A fair amount of Bitcoin lovers are people that are trying to hide their illegal business or wealth. The transactions being hard to trace allows them to exploit the system.

While Dorfman accepts the reasons behind the increasing popularity of Bitcoin, he doesn’t think that the cryptocurrency will go full mainstream and become an everyday payment method. The expert believes that Bitcoin will continue being used mainly to cover illegal operations and gain profit from speculation.