Bitcoin has had its fair share of negativity, ranging from wall street’s finest experts to the oracle of Oklahoma (Warren Buffett) who has predicted the fall of Bitcoin since the first time it caught the attention of the mainstream public. Most recent on that list as reported by CCN, is a Vanguard economist who believes that the price of Bitcoin has a “decent probability” of going to zero.
The economist, Joe Davis, who is also the chief economist at Vanguard – with a $5.1 trillion asset management position – mentioned in an op-ed post that although Vanguard is positive about blockchain technology, it does not see any value or use in cryptocurrencies. He was quoted on CNN saying that he is “enthusiastic about the blockchain technology that makes Bitcoin possible” and that “In fact, Vanguard is using such technology.” However, in terms of Bitcoin, he said that he foresees “a decent probability that its price goes to zero.”
According to Davis’ argument, Bitcoin shouldn’t be considered as valuable, as it would only qualify as a unit of exchange and not an effective store of value. He also mentioned that there are a lack of economic fundamentals in the current state of the crypto market as the entire space is driven by pure speculation.
Bitcoin Going Against Economic Fundamentals
Although it is not the first time for financial experts to predict doom and gloom for the almighty Bitcoin, Davis was blunt in his prediction – even warning against the allocation of a small percentage of investment asset to Bitcoin. According to him, any investment in Bitcoin reduces an investor’s exposure to “tried and true asset classes”.
Davis’ views on Bitcoin are that it is nothing more than an asset to be avoided by all means. In his written statement to the ETF.com op-ed, he mentions that “the investment case for cryptocurrencies is weak. Unlike stocks and bonds, cryptocurrencies generate no cash flows such as interest payments or dividends that can explain their prices. 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. To date, their prices have depended more on speculation about their eventual adoption and use”.
Demand for Bitcoin Increases as Banks Prepare to Adapt
Echoing the sentiments of Vanguards Group Founder who told investors to “avoid Bitcoin like a plague”, Davis also compared Bitcoin with the all too common tulip bulbs analogy of the 17th century in Holland. He believes that cryptocurrencies will be rendered obsolete as competition for the space increases.
In contrast to the economist’s opinions, other asset management firms such as Goldman Sachs have been cozying up to Bitcoin with Goldman looking to launch its own Bitcoin trading operation. In fact, companies such as JP Morgan have identified Bitcoin as a threat to their business model as preparations continue to facilitate products that will help its clients invest into Bitcoin. Due to the growing demand for Bitcoin investment instruments form customers, top banks have started preparing avenues for their customers to invest in the budding cryptocurrency industry with minimal risk.
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