A chief economist at UBS, the largest bank in Switzerland, says cryptocurrency has a fundamental flaw. Bitcoinâ€™s fixed supply could cause the collapse of its value and spending power, making it unattractive to use as a currency, he claims.
A UBS Chief Economist Says Bitcoinâ€™s Fixed Supply Is a â€˜Fundamental Flawâ€™
Paul Donovan, Chief Economist of UBS Global Wealth Management, explained last week why people wonâ€™t want to use bitcoin as a currency. UBS is the largest bank in Switzerland.
â€œThe debate about bitcoin and other crypto tends to be very passionate. Crypto supporters say that economists are just dinosaurs, and economists say that crypto supporters are just selling a bubble.â€ He also pointed out that bitcoin and other cryptocurrencies have been volatile in price terms.
â€œIf we look objectively at the issue, I think an important question is whether bitcoin and other crypto could be currencies,â€ the UBS chief economist continued, emphasizing, â€œAnd, I donâ€™t think that they can.â€
He explained that â€œOne of the key reasons for that is that a currency has to be a stable store of value. With a proper currency, you got a genuine certainty that the basket of goods you can buy today is going to be the same as the basket of goods that you can buy tomorrow.â€
However, he asserted that â€œWith bitcoin and other crypto, you donâ€™t have that certainty.â€ The UBS chief economist explained:
â€œSo, if demand for proper currency goes down, the central bank can reduce supply, maintaining the balance and therefore maintaining spending power,â€ the UBS chief economist opined. However, he did not differentiate between cryptocurrencies with a fixed supply, like bitcoin, and other coins without a fixed supply, including stablecoins.
â€œIt might collapse for a short period of time or it might collapse for a long period of time. But people are unlikely to want to use something as a currency if they got absolutely no certainty about what they can buy with that tomorrow,â€ he concluded.
Many financial strategists, on the other hand, have said that bitcoinâ€™s volatility falls as adoption increases. Fidelity recently pointed out that BTCâ€™s volatility is down about 50% from a few years ago. In July, BTCâ€™s volatility hit a three-year low. Billionaire investor Bill Miller said bitcoin becomes less risky the higher the price goes.
UBS recently published guidance on bitcoin investing. â€œWhile we wouldnâ€™t rule out further price increases,â€ the bank warned: â€œWe are also cognizant of the real risk of one losing oneâ€™s entire investment. Investors in cryptocurrencies must therefore limit the size of their investments to an amount they can afford to lose.â€
What do you think about the UBS economistâ€™s view on bitcoin? Let us know in the comments section below.
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