The global chief economist and global head of Vanguard Investment Strategy Group has become the latest to dampen enthusiasm for bitcoin.
In a blog post written yesterday, Joe Davis argued that bitcoin was not a store of value as ‘its price volatility undermines its adoption.’ Answering a question he is often asked about what he thinks about the number one digital currency, Davis wrote:
“Over the past few months, I’ve gotten this question more than any other. I’m enthusiastic about the blockchain technology that makes bitcoin possible. As for bitcoin the currency? I see a decent probability that its price goes to zero.”
He went on to argue whether cryptocurrencies are currencies. While he agreed that they qualify as a unit of account and as a medium of exchange, he remain dubious of bitcoin’s qualification as a store of value.
“Its price volatility undermines its adoption, as fewer vendors will accept a currency whose value can fluctuate so dramatically,” he said. “The prices of newer currencies have been similarly volatile.”
In his opinion, central banks pose the greatest threat to cryptocurrencies as they are already researching bank-based digital currencies. One example is Japan’s largest bank, Mitsubishi UFJ Financial Group (MUFG), which is reportedly planning to launch a large-scale trial of its own cryptocurrency next year.
“Those currencies would be ‘legal tender,’ legally recognized forms of payment for all debts and charges,” said Davis. “If the choice were between bitcoin or a blockchain-based dollar, which would you rather have in your digital wallet?”
Clearly on a run with his thoughts on the cryptocurrency market, Davis then argued that investment within the industry was ‘weak.’
“Unlike stocks and bonds, currencies generate no cash flows such as interest payments or dividends that can explain their prices,” he wrote. “National currencies derive their prices from the underlying economic activity of the countries that issue them. Cryptocurrency prices, on the other hand, are generally not based on economic fundamentals.”
He added that crypto prices have been mainly based on speculation regarding their eventual adoption and use. This speculation then creates volatility, which, in turn, then undermines the value of the currency. Repeating the tired expression that many cryptocurrencies will end up like the tulips from 17th-century Holland, Davis ended by saying: ‘Unlike tulips, they don’t look very nice in a vase.’
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