Bitcoin's fixed supply means that the amount of crypto in circulation can't be reduced when demand falls.
One of Bitcoin’s most distinctive attributes also serves as a “fundamental flaw,” according to a prominent chief economist.
UBS Global Wealth Management’s Paul Donovan said he doesn’t believe that crypto can serve as currencies because they don’t offer a stable store of value.
Pointing to “proper” currencies such as the dollar and pound, Donovan explained that the basket of goods that can be bought using cash today will be practically identical to the basket of goods you can buy tomorrow.
All of this is linked to the fact that central banks can adjust the supply of a fiat currency in circulation based on demand, ensuring that spending power remains constant.
But according to Donovan, all of this goes out the window with Bitcoin, which has a fixed supply of 21 million. If demand goes down — as it has done in the past — the amount of BTC in circulation can’t be adjusted to achieve this all-important balance. He added:
“People are unlikely to want to use something as a currency if they’ve got absolutely no certainty about what they can buy with that tomorrow.”
Donovan went on to acknowledge that the debate surrounding Bitcoin and other cryptocurrencies is passionate to say the least — with enthusiasts comparing economists to dinosaurs, and economists warning supporters are selling a bubble.