Recently, UBS Wealth, one of the largest asset management companies in the world, published research. This research believes that the value of the crypto digital currency is likely to go to zero due to regulatory measures and competition arising from the emergence of better-designed versions.
“There is little in our view to stop a cryptocurrency’s price from going to zero when a better-designed version is launched or if regulatory changes stifle sentiment.” Investors who hold encrypted digital currencies will therefore lose their assets.
Bitcoin is the largest crypto digital currency, so UBS’s views also include Bitcoin. Obviously, UBS believes that the value of Bitcoin is also very likely to return to zero.
Different views and investment choices of mainstream financial institutions
It is very interesting that the current mainstream financial institutions’ views on Bitcoin have begun to diverge strongly. DBS Bank, Singapore’s largest commercial bank, has already planned to start offering Bitcoin transaction services. Fidelity, the largest asset management company in the United States, has begun to provide Bitcoin custody services. Morgan Stanley held Bitcoin indirectly by buying 10% of MicroStrategy’s stock. MicroStrategy is one of the companies with the largest number of Bitcoin holdings in the world, so Morgan Stanley indirectly holds a large amount of Bitcoin. MassMutual insurance company, which has been in business for more than 150 years, also began to buy Bitcoin.
Researchers in some mainstream financial institutions have also begun to bullish Bitcoin. For example, researchers at Citibank believe that Bitcoin will rise to $300,000 by the end of 2021. Researchers at Morgan Chase believe that Bitcoin will rise to $146,000 in the long run. While these mainstream financial institutions have expressed their recognition of Bitcoin, they have also invested their own funds in Bitcoin.
At the other extreme, some mainstream financial institutions still hold very negative views of Bitcoin. In addition to the views of UBS, there are also research viewpoints of Bank of America. This view holds that Bitcoin is the mother of all bubbles. Wells Fargo also believes that Bitcoin is a highly speculative product. But Wells Fargo also believes that something like Bitcoin that has been developing for 12 years cannot be considered a bubble.
In short, among mainstream financial institutions, the position on Bitcoin is currently at a very controversial stage. It can be said that these views on Bitcoin are a continuum. One extreme is strong opposition, the other extreme is extreme support. So is it possible for Bitcoin to return to zero like the value proposed by UBS? I think there is a reasonable part of UBS’s view, but another part is questionable.
The impact of regulation on Bitcoin
First of all, in terms of regulation of Bitcoin. When financial regulators in the world’s major economic entities take measures on Bitcoin’s related aspects, they will surely cause significant fluctuations in Bitcoin prices. And these financial regulatory agencies will definitely take such measures. Therefore, the chance of a sharp drop in the price of Bitcoin is still very high. In fact, I have always believed that regulatory measures are the gray rhino factors that affect the price of Bitcoin. The impact of this gray rhino is not whether it will happen, but when will it happen, who will it hit, and how much impact will the impact cause? For Bitcoin holders, a clear judgment must be made.
However, I also believe that the regulatory measures on Bitcoin will not completely eliminate Bitcoin. Bitcoin is now generally recognized as an asset. So there is no reason for regulators to redefine the nature of Bitcoin, Bitcoin will continue to exist. The most important thing is that after some regulatory measures are implemented, the operation of Bitcoin will be included in the scope of supervision.
This aspect will limit the highly speculative nature of Bitcoin, and therefore limit the large fluctuations in its price. On the other hand, it will also lay a solid foundation for the inflow of funds into Bitcoin. Funds held by institutions around the world can therefore freely flow in and out of Bitcoin. And this will provide the possibility for further appreciation of Bitcoin.
Competition from stablecoins
Another view of UBS is that the introduction of stablecoins will have very strong competition for Bitcoin, and therefore will lead to a decline in its market demand. I think there is a reasonable side to this argument. However, the competitive effect of stablecoins on Bitcoin will never be as great as the one proposed by UBS.
First of all, stablecoin has its advantages over the existing legal currency circulation mechanism, especially in cross-border transfers and transactions. In terms of the geographical scope of circulation, stablecoins will also flow to places that cannot be reached by the existing legal currency circulation mechanism. In supporting the trading of digital assets, stablecoins have unparalleled advantages.
So after the launch of stablecoins, they will definitely be widely adopted. But it has a small overlap in competition with Bitcoin. They still mainly focus on different markets, so they will not produce the most direct face-to-face competition. And from another point of view, because stablecoins provide more convenient conditions for Bitcoin transactions, stablecoins will instead promote further increases in Bitcoin prices.
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Originally published at https://en.icointime.com on January 19, 2021.
