Switzerland’s biggest financial institution’s chief economist thinks Bitcoin and other digital currencies are fundamentally flawed. Says Bitcoin isn’t attractive enough to be used as fiat and that Bitcoin will collapse due to its limited supply.
UBS Global Wealth Management is the biggest bank in Switzerland and Paul Donovan is working as its Chief Economist.
The bank’s Chief Economist has recently suggested that Bitcoin as well as all other cryptocurrencies are fundamentally flawed. They are inherently so faulty that they can never replace fiat or come closer to it as an alternate source, he said.
Donovan was addressing a gathering when he said that Bitcoin isn’t attractive for him that he could use it alternative to cash. He added that Bitcoin trending is only temporary and is nothing but a bubble that is likely to burst very soon. He further added that the bursting of the bubble will not come from outside but within the Bitcoin. He said that because Bitcoin’s supply is limited to a number of coins therefore it is likely to collapse.
During his address, he commented that the crypto community is not fond of receiving healthy criticism. For them economists are skeptics and for economists, crypto enthusiasts are trend sellers, he stated. He criticized the presence of high volatility prevailing within digital assets and compared them with fiat currencies. He argued that in no way crypto can be regarded as fiat if one considers the objectivity of fiat and crypto.
He pointed out that in order for crypto to overtake fiat, crypto should not need to become a great source of storing value. Instead, it has to transform into a store of value that is “stable” and without stability, it will fade away slowly. Donovan explained that through fiat you can buy certain products today and the same products the next day. But in the case of Bitcoin and other digital assets, one may not be able to do the same. This is because there is too much uncertainty prevailing in the crypto industry, he argued.
The crux of his argument was that in order for being stable, it is necessary to keep the balance between demand and supply. But in Bitcoin neither there is any stability nor is there a balance of supply and demand. Instead, the supply is limited and when that limit is over then the demand will replenish automatically, explained Donovan.
He gave an example and said that if there is a reduction in the demand for currency, then the banks can shorten their supply. In this way, the balance is kept without affecting the power of spending. While talking about Bitcoin and other cryptocurrencies, Donovan also gave his example. He stated that if the demand for crypto is reduced, then the industry cannot cut the supply short to bring about the balance. Resultantly, the spending power will inadvertently collapse because there won’t be any spending power left.