The future of cryptocurrency isn’t as bright as its fans think

As Bitcoin soared to above $28,000 over the weekend, talk resumed about the promising and dramatic future of cryptocurrency. The chief global strategist of Morgan Stanley Investment Management even suggested that Bitcoin could replace the dollar as a global reserve currency.

Cryptocurrency serves some useful purposes. But there are some pretty wild speculations going around. One of the more fundamental problems is that crypto assets can be either useful hedges or useful forms of payment, but not easily both.

There is a demand for a non-intermediated, direct payment asset, and crypto can serve that function. That is why stablecoins, such as crypto assets pegged to the dollar, have proven of enduring interest. People want to transfer something dollar-denominated but with crypto-like features. Yet the very stability of these coins means they have to create institutional layers to preserve their value.