A chief economist at UBS, Switzerland’s largest bank, says the cryptocurrency has a fundamental flaw. Bitcoin’s fixed supply could cause its value and purchasing power to collapse, making its use as a currency unattractive, he claims.
UBS Chief Economist Says Fixed Bitcoin Supply A ‘Fundamental Flaw’
Paul Donovan, chief economist at UBS Global Wealth Management, explained last week why people won’t want to use the Heaven32o currency. UBS is the largest bank in Switzerland.
“The debate over bitcoin and other cryptocurrencies tends to be very heated. Crypto supporters say economists are just dinosaurs, and economists say crypto supporters are just selling a bubble. He also noted that bitcoin and other cryptocurrencies have been volatile in terms of price.
“If we look at the question objectively, I think an important question is whether bitcoin and other cryptocurrencies could be currencies,” the UBS chief economist continued, stressing: “And I don’t think they can. “
He explained that “one of the main reasons for this is that a currency must be a stable store of value. With the right currency, you have real assurance that the basket of products you can buy today will be the same as the basket of products you can buy tomorrow.
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However, he said that “with bitcoin and other cryptocurrencies you don’t have that certainty.” UBS’s chief economist explained:
This is all due to a fairly fundamental flaw in cryptocurrencies. To achieve stable purchasing power, a store of value, it is necessary to maintain a balance between supply and demand.
“So if the demand for a currency decreases, the central bank can reduce the supply, keep the balance and therefore maintain purchasing power,” said UBS’s chief economist. However, it did not distinguish between cryptocurrencies with a fixed supply, such as bitcoin, and other currencies without a fixed supply, including stablecoins.
Donovan continued:
But if the demand for crypto goes down, and it obviously is, the supply cannot go down to keep the balance. Then the value and purchasing power immediately collapse.
“It could collapse for a short period of time or it could collapse for a long period of time. But people are unlikely to want to use something as currency if they have absolutely no certainty about what they can buy tomorrow, ”he concluded.
Many financial strategists, on the other hand, have said bitcoin’s volatility decreases as adoption increases. Fidelity recently noted that BTC’s volatility is down 50% from a few years ago. In July, BTC volatility hit its lowest level in three years. Billionaire investor Bill Miller said Bitcoin became less risky as the price rose.
UBS recently released a guide to investing in bitcoin. “While we do not rule out further price increases,” the bank warned: “We are also aware of the real risk of losing any investment. Therefore, investors in cryptocurrencies should limit the size of their investments to an amount that they can afford to lose.
What do you think of the UBS economist’s perspective on bitcoin? Let us know in the comments section.
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