Deutsche Bank: Bitcoin Is Too Important To Ignore
European banking giant Deutsche Bank has published a 19-page report stating that Bitcoin ‘is too important to ignore.’
The German bank says Bitcoin’s $1 trillion market cap and the likelihood of ‘continued rise in prices’ means that it cannot be ignored, and claims governments are ready to regulate it this year.
The report noted that Bitcoin is now the third largest currency in terms of total value, after overtaking the Japanese Yen, and the bank states that governments know Bitcoin is here to stay and that they will start to regulate it this year.
Bitcoin – A Self-Fulfilling Prophecy?
The report, titled Bitcoins: Can the Tinkerbell Effect Become a Self-Fulfilling Prophecy? is part three of The Future of Payments: Series 2 publications by Deutsche Bank.
Written by research analyst Marion Laboure, Ph.D., the Deutsche Bank report states,
‘Bitcoin’s market cap of $1 trillion makes it too important to ignore. Big players who buy and sell bitcoins have considerable market-moving power. As long as asset managers and companies continue to enter the market, Bitcoin prices could continue to rise.’
Laboure asserts that the belief in Bitcoin is ultimately what gives it its value, saying it ‘will continue to rise and fall depending on what people believe it is worth.’
This is known as ‘the Tinkerbell Effect’ – an economic term used for something that is driven by belief and that as more believe in it, it’s more likelier to happen. Something of a ‘self-fulfilling prophecy.
Laboure points out Bitcoin’s rise in value has seen it grow from being 3% to over 40% of the US dollar’s circulating supply, as it overtook the Japanese Yen to move into third place in total value.
The author mention’s Bitcoin’s limited supply, saying it is a big factor in its rise in valuation, especially as central banks have been increasing their supplies over the years.
This is exactly what is attracting investors to Bitcoin as they seek a hedge against what is expected inflation. We have seen this with corporate treasuries in the last 12 months or so start to make large moves into the Bitcoin market.
Laboure mentions this, saying ‘a few publicly traded companies have started converting cash in their treasuries into Bitcoin as an alternative store-of-value,’ and she mentions MicroStrategy, Square and Tesla as three corporations who have started to adopt a Bitcoin standard.
Deutsche Bank: Bitcoin Transactions And Tradability Are Limited
The Deutsche Bank report wasn’t all eulogizing about Bitcoin’s growth or importance, however. The research author claims Bitcoin is still too illiquid and that ‘transactions and tradability are still limited.’
And Laboure asks if ‘the real debate is whether rising valuations alone can be reason enough for Bitcoin to evolve into an asset class, or whether its illiquidity is an obstacle.’
As mentioned, the value of Bitcoin is about 40% that of the circulating US Dollar, but Laboure argues that the volume of transactions on the Bitcoin network is only 0.009% that of the dollar.
According to the Deutsche Bank data, there’s estimated to be $5.8 trillion average daily traded value on the US dollar, compared with Bitcoin’s $0.5 billion, which Laboure says ‘is much closer to the Thai baht’ volume liquidity.
Bitcoin Volume Is Low, But That’s Because Few Want To Trade It
The Deutsche Bank report was relatively bullish, and the author’s claims that ‘it’s too important to ignore’ shouldn’t be taken lightly.
The author highlights many positive features about Bitcoin, and overall gives a balanced opinion. However, to suggest Bitcoin’s low liquidity compared with the dollar and other leading currencies is a concern misses the point.
Bitcoin is the best performing asset over the last decade, and the likelihood of it appreciating in value more than the depreciating dollar is close to 100%.
Let’s not forget the US dollar is regulated on every forex exchange and anybody or financial institution can trade it, whereas Bitcoin is still unregulated and the biggest institutions cannot yet touch it.