Why a Nobel Laureate's Prediction on Bitcoin Misses the Mark

Bitcoin, Money, and What Eugene Fama Overlooks

A Nobel Laureate's Misunderstanding of Bitcoin and Money's Evolution

Nobel laureate Eugene Fama recently made headlines by predicting Bitcoin's inevitable collapse, assigning a "close to 100% probability" that it will become worthless within the next decade. Coming from the economist famed for pioneering the Efficient Market Hypothesis—a theory suggesting that asset prices fully reflect all available information, making it impossible to consistently outperform the market—this stark prediction warrants serious consideration. Yet, upon closer examination, Fama's pronouncement reveals a critical misunderstanding—not just of Bitcoin, but of the broader history and evolution of money itself.

Central to Fama's critique, expressed during his January 2025 interview on the Capitalisn’t podcast, is the claim that Bitcoin violates the fundamental principles required of a medium of exchange—specifically, stability in real value. Indeed, Bitcoin's price volatility is notorious, often fluctuating by double-digit percentages within a single day. This volatility, he argues, disqualifies Bitcoin from becoming an effective currency. On this point, Fama is entirely correct, as it relates to Bitcoin in its current state. Daily transactional stability is essential for a widely adopted medium of exchange. Businesses and consumers alike rely on relatively predictable prices to facilitate commerce and plan future investments and expenditures, and right now, Bitcoin is simply too volatile to be a reliable medium of exchange.

Yet this insight, while valid, falls short by anchoring Bitcoin's potential exclusively to its capacity to function as a currency. Bitcoin scholars and advocates largely abandoned this narrow framing years ago. Instead, they view Bitcoin predominantly as a store of value—a digital analog to gold—rather than as everyday cash. Historical monetary systems have consistently shown that money operates in layers: base forms of money (like gold or central bank reserves), credit-based money (bank deposits and loans), and increasingly complex synthetic monetary instruments—such as eurodollar deposits and currency futures.

Fama surprisingly also interprets Bitcoin's fixed supply as a fundamental weakness, arguing that it inherently generates volatility due to its inability to adjust supply to demand fluctuations. While it is true that Bitcoin's fixed supply contributes to volatility, interpreting this as an inherent weakness ignores the very reason Bitcoin appeals to investors. Its scarcity, hardwired into its code, contrasts dramatically with fiat currencies subject to inflationary monetary policies. This difference attracts investors seeking a hedge against traditional monetary instability or political interference—functions historically performed by gold. Fama’s insistence that Bitcoin fails as a currency thus misses the crucial point that Bitcoin is thriving precisely because it is not trying to replicate the function of dollars or euros.

Furthermore, Fama's assertion conflicts strikingly with the core of his own Efficient Market Hypothesis. The market's current valuation of Bitcoin—at times exceeding a $2 trillion market capitalization—represents the aggregated beliefs and knowledge of millions of investors worldwide. If markets efficiently incorporate all available information, as Fama himself argued throughout his distinguished career, then the current valuation implicitly rejects his notion of Bitcoin’s near-certain worthlessness. Either the collective judgment of global investors is dramatically misinformed, or Fama's claim is excessively certain and insufficiently nuanced.

Historically, skepticism of new monetary paradigms is commonplace. When paper currency replaced gold-backed money in the early 20th century, critics predicted its inevitable collapse due to lack of intrinsic value. Similarly, the introduction of credit cards in the mid-20th century initially faced widespread distrust. Each time, monetary innovations succeeded by fulfilling emerging social and economic needs, often in unexpected ways. Bitcoin’s volatility today may diminish as markets mature, infrastructure expands, and regulatory frameworks clarify, or its volatility may remain an accepted feature of an asset valued not for daily transactions but for long-term economic independence.

Bitcoin’s critics, including Fama, are not wrong to question its viability and utility, for such scrutiny is necessary and healthy. But asserting that Bitcoin will inevitably become worthless ignores historical precedent, dismisses the vital role of scarcity in creating economic value, misunderstands its evolving role in global finance, and ultimately contradicts the very market dynamics that Fama himself helped elucidate.

I'm not suggesting that Bitcoin’s future is inevitably bright, but the reasons presented above for why it's inevitably bleak simply don't hold up. The future holds uncertainty, but it is precisely this uncertainty that fuels the dynamism and innovation underpinning all significant economic change. To declare Bitcoin’s worthlessness with such absolute certainty is to misunderstand not only Bitcoin but the nature of money itself.

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