DB: Bitcoin to become 21st-century gold
Gold really is a barbarous relic - Deutsche Bank analyst says Bitcoin to become 21st-century gold
By Jordan Finneseth for Kitco News
Bitcoin (BTC) has had a breakout year in terms of institutional adoption thanks to the launch of multiple spot BTC exchange-traded funds in the U.S., and according to one bank, King Crypto is on track to become the 21st-century’s version of gold.
Deutsche Bank senior economist and market strategist Marion Laboure, who also lectures in finance and economics at Harvard University, conducted a question-and-answer session with clients to provide insights on the appeal of Bitcoin.
When asked about the main appeal of Bitcoin in a world of inflating fiat currencies, Laboure highlighted that “The supply of Bitcoins is fixed.”
“The maximum number of Bitcoins that will ever exist is just under 21 million. And around [94] percent of the total supply of Bitcoin is already in circulation,” she said. “In many fiat currencies, central banks control the supply and have increased significantly in recent years.”
When asked why Bitcoin couldn’t be used to buy food or clothes, Laboure clarified, “You can, but only in a limited number of shops at the moment.”
“Over the past year, the trend has been for more venues to accept many different types of payments,” she said. “An increasing number of shops now accept cryptocurrencies, but Bitcoin or Ethereum are not really common forms of payment.”
“Although the latest developments will allow faster and cheaper transactions, it takes about ten minutes to validate most transactions using Bitcoin,” she highlighted. Transacting in Bitcoin can also be expensive, she added, with the cost exceeding $60 during times of high network activity. On April 20 of this year, the median transaction fee spiked above $92.
While Bitcoin was originally intended to be a peer-to-peer (P2) transactional currency, Laboure noted that over time, the public's view of it has changed. It is no longer considered a means of payment but has still not achieved the stability of gold.
“People have always sought assets that were not controlled by governments,” she said. “Gold has had this role for centuries. And yes, I could potentially see Bitcoin becoming the 21st-century digital gold. Let’s not forget that gold was also volatile historically.”
“But it is important to keep in mind that Bitcoin is risky: it is too volatile to be a reliable store of value today,” she added. “And I expect it to remain ultra-volatile in the foreseeable future.”
When asked how Bitcoin is different from fiat currencies, she highlighted that they “are very different types of assets.”
“Traditional currencies are backed by an entire government, and they are also legal tender,” she said. “This means that it is a legal obligation to accept them as a means of payment – which is not the case for any private crypto-currency. El Salvador [is the main] exception since their decision to adopt Bitcoin as legal tender.”
As for why Bitcoin is now considered to be more of a store of value than a transactional currency, Laboure cited three main reasons.
“First, about two-thirds of Bitcoins are used for investments and speculation,” she said. “Second, due to its limited tradability, just a few additional large purchases or market exits can significantly impact the supply-demand equilibrium. Third, Bitcoin’s value will continue to rise and fall depending on what people believe it is worth. Small changes in investors’ overall perceptions about Bitcoin can have a large impact on its price.”
Regarding the major disadvantages of cryptocurrencies, Laboure said, “The main issue with cryptocurrencies is the lack of regulation.”
“While it was a very important advantage for first users, it prevents many investors or businesses from entering the market today,” she said. “Second, the ecological footprint of cryptos is disastrous. Bitcoin’s annual electricity consumption puts it at the edge of being the equivalent of a top 30 country. For example, in one year, it uses around the same electricity as the entire population of Pakistan (c.217m people)!”
She noted that there is hope on the horizon in this regard, as the “Latest technical developments will allow cryptocurrencies to become greener.”
Regarding regulations, the roll-out of the Markets in Crypto Assets (MiCA) is expected to help provide clarity, and the U.S. is expected to see progress on this front once the elections occur and the new cohort of legislators begin their next session.
Wading deeper into the crypto market, Laboure was asked about the difference between Bitcoin and Ethereum (ETH), the second-ranked cryptocurrency by market capitalization, which she referred to as “digital silver.”
“Bitcoin is clearly the pioneer and the most traded crypto,” she noted. “Its market cap is [significantly] bigger than the market cap of the number two Ethereum, which offers many applications and use cases, such as decentralized finance (DeFi) and non-fungible tokens (NFT). If Bitcoin is sometimes called ‘digital gold,’ Ethereum would then be the ‘digital silver.’”
Asked whether she sees a new token emerging as a strong competitor to Bitcoin or Ethereum in the next five years, Laboure said, “It seems very unlikely to me because of the network effect. Bitcoin enjoyed a first-mover advantage and is now the most traded and well-known cryptocurrency. And Ethereum has several real applications, as we stated earlier.”
As governments worldwide move to co-opt blockchain technology to launch central bank digital currencies (CBDCs), Laboure said she sees a future where CBDCs, cash, and cryptos will coexist.
“In contrast to cryptos, central bank digital currencies (CBDC) are fully centralized, issued by a legal entity, and bound by regulatory framework,” she noted. “On the contrary, cryptocurrencies are decentralized, with a transaction ledger visible to all.”
“CBDC, cash, and cryptos will coexist,” she said. “Cash will certainly not disappear, but we expect it to decline as a means of payment. Most G20 countries plan to impose stricter regulations on private crypto-currencies. Over the past three years, central banks and governments around the world have multiplied and sped up digital cash initiatives.”