Bitcoin (BTC)–One of the world’s largest investment banks has commented upon the rise of cryptocurrency, and found fault with the scalability and price volatility associated with Bitcoin.
The Union Bank of Switzerland, an investment bank and financial services company, has joined the list of Bitcoin detractors who point out the obvious flaw with the currency: price volatility will continue to repulse the average person from using it as a form of money. As reported by CNBC, UBS strategist Joni Teves wrote in a letter to clients that Bitcoin should not be considered a “legitimate asset class.” The strategist warned that increased regulatory support is still warranted, and that technical hurdles related to scalability continue to prevent the coin from going mainstream. In addition, he also found fault with the price volatility–a refrain that has become common in and outside of the industry–that makes Bitcoin difficult to use as a regular currency,
“Bitcoin is still too unstable and limited to become a viable means of payment or a mainstream asset class. Owing to its lack of price stability, bitcoin falls short of criteria that need to be satisfied to be considered money.”
As Bitcoin’s price continues to tumble towards $7000 and prolong 2018’s bearish cycle, the cryptocurrency critics highlighting price volatility seem to be announcing themselves in droves. Despite the belief by many within the industry that a Bitcoin based ETF is going to overcome the hurdle of SEC approval, UBS remains skeptical of BTC’s ability to function as money,
“Fixed supply and unusual demand dynamics make the system susceptible to high price volatility, in turn making it difficult for bitcoin to step into the role of money or to be a viable new asset class.”
However, the investment bank is not entirely writing off the future of cryptocurrency–instead they find scalability and erratic valuation to be a barrier to going mainstream. Regulatory support, such as the aforementioned SEC approved ETF, would be the first major step to overcoming the hurdle of acceptance. At present, institutional and Wall Street money has yet to fully back crypto, in part because of the murky regulatory and legal landscape of the investment. Scalability is also highlighted in the paper as an area for the largest cryptocurrency by market capitalization to improve upon. In January, as the crypto markets were reaching their pinnacle for the year, the utility of BTC transactions ground to a halt in the form of high fees and slow confirmations. According to BitInfo, average BTC transaction fees hovered around $55 at the beginning of the year, creating an expensive, congested network just when the cryptocurrency was getting its widest global exposure.
Despite the harsh words on price volatility, the UBS report contends that Bitcoin could find a future as a payment platform or investment vehicle, stating BTC could one day become,
“a viable payment mechanism and/or a legitimate asset class in which even the most conservative and traditional investors can participate.”
The UBS report reiterates a commitment to continued research and investigation into cryptocurrency, particularly for the benefit of the underlying blockchain technology.