UBS Exec Paul Donovan Blasts Bitcoin, Affirms “Cryptos Are Fatally Flawed”
UBS Exec Paul Donovan Blasts Bitcoin And Affirms “Cryptos Are Fatally Flawed”
Paul Donovan, the Wealth Management Global Chief Economist of the Swiss bank UBS, is very skeptical about cryptos. Yesterday, November 29, though, he went further to state that cryptos are bad and that he does not support them while calling them “fundamentally flawed”.
Donovan told this during an interview with CNBC’s Fast Money, in which he talked about a recent blog post he wrote called “I Come to bury Bitcoin, not praise it”, which was more criticism against Bitcoin.
During the interview, in which the blog post was featured as a subject, Melissa Lee, the CNBC anchor, has asked Donovan whether his article was opportunistic and meant to capitalize on the fall of Bitcoin. He used an argument that was alike Nouriel “Dr. Doom” Roubini’s one: cryptos are not a good idea and anyone is capable of seeing that.
Lee asked about the interest that Wall Street has in the asset, but to Paul Donovan, it was only hyped and the Wall Street investors were making a bad call by trusting the asset. He also added that Bitcoin is not digital gold and that people should not be too concerned about using fiat currency.
The Fatal Flaw
The main problem that Donovan sees with cryptos and their potential to be considered money is that hey “fatally flawed”, something that he argues that “anyone with a high school education in the economy” can understand.
While he criticizes Bitcoin, he affirms that the underlying technology that makes Bitcoin viable, the blockchain, is actually useful and has an economic proposition, even if it has an amount of hype and it is still underdeveloped.
However, he calls the attempts to make people believe that Bitcoin will be the new Dollar “quite a leap”, which is just a more educated way of saying he thinks these ideas are bullshit.
The fatal flaw, Donovan defends, is that cryptos cannot be used as a currency or as a store of value because they are highly volatile and technology is simply not good for this.
Donovan affirms that what happened in 2017 was a bubble. People got overhyped and overbought Bitcoin, which made some people rich and a lot of people ended up losing their money because of this. He affirms that they will never become a trustworthy way of storing value.
According to him, storing value, as an economist should know, is all about balancing supply and demand. However, he affirms that cryptos cannot control their supply when their demand drop and this causes major price decreases like the bear market which we are seeing today.
The Bitcoin creators, Donovan affirms, were brilliant at math and they designed a very good mathematical system. However, they seemed to know nothing about economics, in his opinion. He defends that the real value comes from the match of supply and demand and, if the crypto supply can only go up and never down, demand is created only by blind faith, not any real economics.
Whenever the trust and this “blind faith” is destroyed or attacked, value goes down as demand goes down and the supply will be only increasing. Value, according to the economist from UBS, is being destroyed at this moment.
This is far from the first time that the economist clashes with Bitcoin. He compared it to the Dutch Tulip Bubble of 1637 last year and stated that future contracts for Bitcoin were just like tulip futures.
Bitcoin And “Failed States”
Interestingly, the one nice thing Paul Donovan said about cryptos is that they can be useful in “failed states”. Countries having wide corruption or a high devaluation of fiat can have an interesting use for cryptos because the tokens may be devalued less quickly than the national currency.
Use cases for this can be easily seen in South America today. Both Venezuela, which is having a huge inflation problem with an inflation that will end the year in more than a million percent, and Argentina, which is having a considerably more mild experience with inflation, are studying Bitcoin as a way to store value.
UBS Accused Of Money Laundering
Ironically, UBS is involved in money laundering cases in France and may pay $6 billion USD in fines. While Donovan is not directly involved, his employer is. Looks like bankers may not like Bitcoin, but they are not too clean to be criticizing it so much, are they?