(Bloomberg) — Former U.S. Treasury Secretary Lawrence Summers said cryptocurrencies could stay a feature of global markets as something akin to “digital gold,” even if their importance in economies will remain limited.
Speaking at the end of a week in which Bitcoin whipsawed, Summers told Bloomberg Television’s “Wall Street Week” with David Westin that cryptocurrencies offered an alternative to gold for those seeking an asset “separate and apart from the day-to-day workings of governments.”
“Gold has been a primary asset of that kind for a long time,” said Summers, a paid contributor to Bloomberg. “Crypto has a chance of becoming an agreed form that people who are looking for safety hold wealth in. My guess is that crypto is here to stay, and probably here to stay as a kind of digital gold.”
If cryptocurrencies became even a third of the total value of gold, Summers said that would be a “substantial appreciation from current levels” and that means there’s a “good prospect that crypto will be part of the system for quite a while to come.”
Comparing Bitcoin to the yellow metal is common in the crypto community, with various estimates as to whether and how quickly their total market values might equalize.
Yassine Elmandjra, crypto analyst at Cathie Wood’s Ark Investment Management LLC, said earlier this month that if gold is assumed to have a market cap of around $10 trillion, “it’s not out of the question that Bitcoin will reach gold parity in the next five years.” With Bitcoin’s market cap around $700 billion, that could mean price appreciation of around 14-fold or more.
But Summers said cryptocurrencies do not matter to the overall economy and were unlikely to ever serve as a majority of payments.
Summers’ comments were echoed by Nobel laureate Paul Krugman, who doubted crypto’s value as a medium of exchange or stable purchasing power, but said some forms of it may continue to exist as an alternative to gold.
“Are cryptocurrencies headed for a crash sometime soon? Not necessarily,” Krugman wrote in the New York Times. “One fact that gives even crypto skeptics like me pause is the durability of gold as a highly valued asset.”
Summers also said that President Joe Biden’s administration is heading in the “right direction” by asking companies to pay more tax. He argued policy makers in the past had not been guilty of pursuing “too much antitrust” regulation although he warned it would be “badly wrong” to go after companies just because of increasing market share and profits.
Returning to his worry that the U.S. economy risks overheating, Summers said the Federal Reserve should be more aware of the inflationary threat.
“I don’t think the Fed is projecting in a way that reflects the potential seriousness of the problem,” he said. “I am concerned that with everything that’s going on, the economy may be a bit charging toward a wall.”