Another of the world’s biggest financial institutions has just characterized bitcoin (BTC) as unreliable as a store of value asset, an unsurprising prognosis considering the mainstream banking industry’s continued general skepticism toward cryptocurrencies.
The firm, Deutsche Bank, is among the 20 largest banks in existence, so it also currently has some of the most reasons — namely billions’ worth of managed assets — to resist disintermediation brought on by decentralized, non-sovereign digital currency.
Of course, bitcoin is indeed still the David in its “David vs. Goliath” struggle to become a mainstream world currency, which in extension means its relative smallness does bring on volatility.
Yet many bitcoin proponents will see Deutsche Bank’s new BTC remarks as overly pessimistic.
Context: No Death of Cash Near?
The banking giant’s relevant bitcoin commentary came in the first installment of its new “Future of Payments” report series.
This installment, dubbed “Cash: the Dinosaur Will Survive … For Now,” laid out an over-arching argument for how digital money hardly boded imminent doom for cash. As the authors established at the start:
“When people discuss the future of payments they tend to predict the end of cash. Our view is different. Not only do we think cash will be around for a long time, we see the transition to digital payments as having the potential to do no less than rebalance global economic power.”
Deutsche Bank mentioned bitcoin no less than 31 times in its report. None of the references were barbed, but ultimately the company noted it was no big believer in bitcoin’s mainstream prospects.
“Bitcoin is too volatile to be a reliable store of value,” the institution said matter-of-factly.
Moreover, Deutsche Bank went on to suggest that if any cryptocurrency had a chance at going mainstream, it was possibly one that was yet to come and not bitcoin per se:
“Some believe cryptocurrencies should be considered an asset class, akin to gold. Perhaps, but cryptocurrencies are also a revolutionary new technology that can change the way we interact with payments. Looking ahead, it may not be surprising if a new and mainstream cryptocurrency were to unexpectedly emerge.”
Taking the Other Side
How might a bullish bitcoin analyst respond to the charge that BTC is too volatile?One need look no further than Unchained Capital’s head of bizdev Parker Lewis.
In a post published last fall titled “Bitcoin Is Not Too Volatile,” Lewis argued that bitcoin’s volatility would work itself out over time if the crypto can continue on its current trajectory:
“While failure is a possibility and significant drawdowns are an inevitability, each day that bitcoin doesn’t fail, its survival becomes more and more likely (Lindy Effect). And over time, as bitcoin’s value and liquidity increase due to its fundamental strengths, its purchasing power will also increase in terms of real goods, but as its purchasing power represents a larger and larger share of the economy, its volatility relative to other assets will proportionally decrease.”
In other words, Bitcoin proponents might take the “Rome wasn’t built in a day” approach. It’ll take more than one decade of existence for BTC to become an established and stable currency, to be sure. And if the crypto does continue to grow toward mainstream status, it should become increasingly non-volatile as it goes.
For now, such proponents would say, it’s good enough to have bitcoin in your portfolio as a long-term asymmetric bet and spend other assets all the while, hoping along the way that BTC’s wider adoption pans out.
Deutsche Bank, however, is currently not taking that bet and apparently doesn’t have plans to for the foreseeable future. Fair enough, right, but certainly skeptical.