UBS Strategist Says Bitcoin’s Volatility and Regulatory Roadblocks Make it ‘Unstable’ Asset Class
Experts Claim Bitcoin is Too Unstable to Become Mainstream Money
Bitcoin’s price volatility could prevent it from becoming a mainstream currency, according to a new report from UBS. The currency needs to overcome its price volatility and regulatory roadblocks if it wants to be considered a mainstream asset class.
“Bitcoin is still too unstable and limited to become a viable means of payment or a mainstream asset class,” said USB strategist Joni Teves, as reported by CNBC.
Teves made the statement after analyzing bitcoin’s historic price movements. Teves didn’t just have a problem with the fact that bitcoin’s price moves: he had a problem with the fact that bitcoin’s price moves were driven by speculative “momentum-driven” interest.
It’s no secret that price volatility is impeding the acceptance of bitcoin as a global currency. Merchants can’t accept 1 BTC for a product or service today and hold onto that 1 BTC for months. That’s why many merchants that accept bitcoin will transfer the currency immediately into their native fiat currency.
We may one day reach a point where merchants accept bitcoin and hodl it – but price volatility prevents that from happening en masse today.
Interestingly, the price of bitcoin is reaching historic lows in terms of volatility. Since plummeting to the $6,000 range in early 2018, bitcoin has stabilized within the range of $6,500 to $8,000 – a range it has largely stayed within over the last few months.
Nevertheless, it’s not uncommon for the price of bitcoin to rise or fall by hundreds of dollars in a few hours. Plus, all it takes is a single news story – like the approval or denial of a bitcoin ETF – to send markets skyrocketing or plummeting.
Bitcoin’s Volatility Makes It Subpar for Daily Users, But Ideal for Investors
Bitcoin investors have had historic success with the currency. The currency has closed at a new all time high every year, and anyone who has held bitcoin since early 2017 has made money.
Bitcoin’s volatility and price swings lure investors – but they’re not ideal for those who wish to use bitcoin as a medium of exchange.
This is where the BTC vs BCH debate comes to the fore. BTC supporters see bitcoin as a form of digital gold that isn’t ideal for daily transactions. BCH supporters, meanwhile, believe in the tenets of Satoshi’s original whitepaper, arguing that bitcoin derives its value from its status as a medium of exchange.
BTC Has Reached Its “Technical Limits”
Scalability is another concern. Bitcoin – or at least BTC – appears to have reached its technical limits. Teves mentioned these technical limits in his report, claiming that efforts by developers have been “insufficient” to address scaling on the BTC network.
“Bitcoin cannot handle the volume of transactions processed by mechanisms being used in the real world,” explains Teves.
The networks of VISA and MasterCard, for example, are capable of securely processing millions of transactions per second, while bitcoin’s network processes just 7 transactions per second.
Nevertheless, UBS and Teves didn’t completely rule out the idea of bitcoin as a form of payment in the future. Teves believes that bitcoin can become a “legitimate asset class” if it achieves features like regulatory support and consumer safeguards.
Bitcoin Needs to Hit a Price of $213,000 to Replace Money Supply, According to UBS
The same UBS report claims that bitcoin needs to hit a price of $213,000 if it wants to replace money supply.
If bitcoin reaches a price of $213,000, then UBS believes it can feasibly replace US money supply – including the paper bills, coins, and other items used as fiat currency in the United States.
Alternatively, bitcoin’s network processing capabilities would need to drastically improve if it seeks to replace existing US money supply. As mentioned above, UBS and Teves believe the network has demonstrated a lack of ability to scale.
“Our findings suggest that bitcoin, in its current form, is too unstable and limited to become a viable means of payment for global transactions or a mainstream asset class,” the 34-page report explains.
Ultimately, it remains to be seen if bitcoin will move forward as “digital gold” unsuited for daily transactions, or if scalability improvements will allow bitcoin to once again be used as a medium of transfer suited for daily use.