According to bank UBS, the volatility of Bitcoin’s price undermines its credibility. A UBS director recognizes the disadvantages of fiat money, including its constant devaluation.
Swiss bank UBS recently recommended in a statement “not to see this as a mainstream moment for cryptocurrencies and to exercise caution.” Regarding the increase in the price of Bitcoin (BTC) and other crypto assets, they believe that these are not currencies. Furthermore, they consider it “an exaggeration” to believe that they will become mainstream.
UBS Communications Director Mark Haefele mentioned the disadvantages that he finds in fiat money, that is, that which central banks issue. He referred to its constant devaluation among the weaknesses of this type of money.
Haefele predicted that inflation will continue, both in Europe and the United States, due to the excessive printing of cash. Although he does not say it, the factor that leads many to protect their assets in Bitcoin is its deflationary characteristic.
“We encourage investors to reconsider the levels of cash that they have,” Haefele said. He did not mention any particular investment instrument, but suggested “putting excess cash to work”.
“Bitcoin’s Volatility Undermines Its Credibility,” According to UBS
UBS argued that “the basic function of a modern currency is to store value.” They believe that the high volatility of the price of Bitcoin “undermines the credibility of cryptocurrencies, far from increasing it.”
This 159-year-old bank mentioned Tesla’s recent acquisition of USD 1.5 billion in Bitcoin. They used that information about the electric car company to substantiate their belief that Bitcoin is not a currency.
“Tesla could accept Bitcoin as a payment mechanism, but that is different from setting the price in Bitcoin or withholding the received Bitcoin. Those actions would be more consistent with incorporating it as a currency,” according to the financial institution.
It is not the first time that UBS has expressed its position on the monetary nature of Bitcoin. In 2017, the finance company had already expressed its skepticism that cryptocurrencies could replace fiat money. At the time, their argument resembled that of his recent statement: “Currencies only have value when they can buy something useful.”
Warning Signs of Bitcoin
The financial institution also mentioned the regulatory risks that cryptocurrencies could pose. In that sense, they gave as an example the US Treasury Secretary Janet Yellen, who asked to join forces to regulate Bitcoin.
UBS said that some people could use cryptocurrencies to launder money and evade taxes. The bank considers that this represents “a warning sign”.
Regarding the mining of Bitcoin and other cryptocurrencies, they said that it “contributes to carbon emissions and does not improve the standard of living.” UBS put a link to a study on the electricity consumption of mining by the University of Cambridge. They say that it is difficult for them to understand how “sustainability-oriented investors” can put money in Bitcoin.
In that last statement, it is possible to see an indirect reference to Tesla, the company that Elon Musk founded. The latter boast of “producing all-electric cars and infinitely scalable clean energy generation and storage products.”
A more recent study by the University of Cambridge shows that almost 80% of Bitcoin miners use renewable energy sources. However, UBS does not mention it at all in its statement.
By Alexander Salazar