'Bitcoin is a gambling instrument for Chinese, Koreans and Japanese'
Cryptocurrency will not be recognized as a legal currency due to its high volatility, with only a handful of exchange operators standing to gain, a noted global economist and financial market expert said Thursday.
"Bitcoin is primarily a gambling instrument for Chinese, Koreans and Japanese," Andy Xie, a vocal critic of the bitcoin craze, told The Korea Times.
"Even though so many argue it could be used to replace the fiat currency, its huge volatility makes it impossible."
The former Morgan Stanley economist is well-known for having forecast the 1997-98 Asian currency crisis and has long warned that consequences will be much more severe than the 2008 global financial crisis due to what he calls fraud.
Cryptocurrency will never be recognized as legal currency, because the governments cannot issue bonds in that. Its volatility could bankrupt such a government," he said.
His critical view comes as the bitcoin price recovered recently to over 16 million won ($13,800) on June 27 thanks to a series of moves to bring the virtual coin into the financial system. The price hovered around 14 million won Thursday.
The management at J.P. Morgan Chase is reportedly planning to begin testing its highly anticipated cryptocurrency, called "JPM Coin."
Similarly, Facebook released its white paper explaining Libra and its testnet for working out the kinks of its
blockchain system before a public launch in the first half of 2020.
The economist said Facebook's Libra is a clever marketing scheme to draw people in and make them stay.
"Facebook's Libra should be bad for bitcoin, because its launch will increase supply of a substitute. But its psychological effect is to remind people that it is becoming more legitimate. Hence, people go back in," he said.
In Xie's view, while bitcoin reached a historical high $20,000 (23.37 million won) in 2018, it is unlikely to surpass that because the Wall Street traders will not allow it.
"Wall Street has set up a
futures market in Chicago. The traders there could push it back when it is that high. They would push it down until the people in East Asia panic and run. Then they will square position to cash out," he said.
The U.S.-based traders to whom bitcoin is a major source of income, the "game" is becoming more important.
"They are essentially making money from East Asia. They will make it in such a way to keep the game going. East Asians lose about $100 billion in gambling every year," he said.
"Cryptos are taking over the business. Eventually, you will see physical casinos closing down."