Deutsche Bank analyst: The value of Bitcoin is entirely based on wishful thinking

Deutsche Bank published a research report on Thursday titled "Bitcoin: Trend is the last stage before obsolete," which quotes "Lafayette" Karl Lagerfeld. Deutsche Bank analyst Marion Labouré wrote, “The same laws of attractiveness apply to bitcoin, which is rapidly becoming obsolete like fashion’s ‘fashion disaster’.”

“In the past three months, something has started to crumble in the cryptocurrency market. All it takes for a cryptocurrency to go from fad to obsolete is a celebrity tweet and a government statement,” Labouré’s report reads.

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On May 12, Tesla CEO Elon Musk tweeted that Tesla would stop accepting bitcoin payments due to environmental concerns.

"These words directly caused the value of Bitcoin to plummet from nearly $60,000 a few days ago to below $48,000, and then on Tuesday, the People's Bank of China reiterated that it would ban encrypted tokens as a means of payment, which caused Bitcoin to plummet for a while. below $30,000, the lowest since January."

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“Bitcoin’s $1 trillion market cap makes it impossible for people to ignore, but Bitcoin’s true role as a transaction tool is very limited.” That’s why Labouré said that “the value of Bitcoin is based entirely on wishful thinking.”

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"Bitcoin's value will continue to rise and fall, depending on people's confidence in its value." Labouré said this phenomenon is known as the "fairy effect" because belief is the only way to determine its value.

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Labouré said the mid- to long-term outlook for digital assets is uncertain, and it will take a long time for cryptocurrencies of any kind to gain broad appeal. During this period, Bitcoin "will remain in circulation and its value may continue to fluctuate".

According to estimates by Deutsche Bank, 30% of Bitcoin activity is for payments, with the rest being "financial investments." And contrary to what its volatility might suggest, overall liquidity is not high. Last year, Apple’s trading volume was 270% of its share count; for Bitcoin, the figure was 150%.

This is yet another reason why cryptocurrencies may continue to remain volatile.

"Bitcoin is expected to remain hyper-volatile due to its limited tradability; some large off-market trades could significantly affect the balance of supply and demand. The underlying causes of bitcoin volatility include small-scale strategic asset allocation and Market moves by large institutions," Labouré wrote.

Federal Reserve Chairman Jerome Powell believes that digital currencies are a complement to the U.S. dollar, not a substitute, and no matter what the Fed does, it will affect the cryptocurrency market. With regard to Bitcoin, the domestic government is taking a more aggressive approach to make room for the development of the digital renminbi. “It is clear that China’s targeted regulatory actions are intended to support the launch of a digital yuan (CBDC),” Labouré wrote.

Deutsche Bank pointed out that Libra is a classic demonstration model of the government's power in cryptocurrency regulation. Facebook announced a future global currency in 2019, which will greatly affect the government's control over financial rights, thus triggering regulatory siege , the Libra project is over.

“The product is now focused on reducing the cost of payments, rather than competing with governments and central banks by creating a parallel means of payment. In other words, Facebook is not looking to create a currency that will compete with the U.S. dollar; instead, they want to compete with the traditional competing with dollar payment methods,” Labouré wrote.

This, she said, is probably the best way to look at cryptocurrencies, not just as a speculative asset, but as a fintech solution for faster and cheaper global payments.

"In the final analysis, it is not difficult to regulate cryptocurrencies, and the government will jump out to protect their financial monopoly. In the future, the trading drawbacks of Bitcoin may eventually allow it to be replaced by another more diversified digital asset."

Author: Chen Zou

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