Speculation Undermines Crypto Prices and Utility, Says Bank of England Senior Economist

Speculation creates congestion on the blockchain that harms a cryptocurrency’s utility and overall value, a senior economist at the Bank of England (BoE) has said.

Peter Zimmerman, who has been a senior economist at the U.K. central bank since 2007, argued in a working paper published Friday that speculation undermines the effectiveness of cryptocurrencies to function as a means of payment.

Because blockchains have a limited processing capacity, periods of high usage make transactions slower and more expensive, the paper observes. Assuming a cryptocurrency’s value derives from its utility as a payment tool, on-chain congestion makes transactions slower and more expensive, making it less useful and therefore less valuable to holders.

“Limited settlement space creates competition between users of the currency, so speculative activity can crowd out monetary usage,” reads the working paper. “Speculation congests the blockchain, reducing the moneyness of cryptocurrency, and impacting its…