Monday, December 4, 2017

And that is called a dividend

Our friends Cecchetti & Schoenholtz are trying to find a utility for bitcoin:
Start with the fact that, unlike a stock, there is no prospect of Bitcoin ever paying a dividend since there are no earnings. Instead, Bitcoin’s chief benefits appear to arise from the transactions privacy that cryptocurrency advocates tout. As the chart below indicates, the volume of Bitcoin trading on exchanges surged in 2015 and 2016. That was a period of relatively high capital outflows from China, even in the face of extensive capital controls. Indeed, as we wrote early this year, fully 97 percent of 2016 Bitcoin exchange transactions took place in China! Had Bitcoin become primarily a device to evade restrictions on capital outflows?
The bold is mine.  For Chinese cash holders un capital controls the blockchain provides a simple, efficient FX transfer.   That is a dividend. As long as we have central banks we will have the bitcoin tool.  As central banks get efficient, the value of bitcoin goes down.

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