According To Luca Paolini, Pictet Asset Management’s Chief Strategist, Bitcoin Still Presents Too Many Shortcomings, Beginning With Mining Sustainability.
In mid-March, Bitcoin crossed the threshold of $60,000 for the first time and, for a few days now, has been hovering around $58,000. This recent surge has brought back attention to the ultimate cryptocurrency, while investors from all over the world have started wondering again – as usual – whether Bitcoin can be considered as a real investment tool.
Monetary Policy Barometer: Luca Paolini, Pictet Asset Management‘s Chief Strategist, dwelled on the pros and cons of Bitcoin, reaching the conclusion that it is unlikely to become a real investment tool, and much less likely to substitute the dollar. According to Paolini, it is no coincidence that Bitcoin value rose along with inflation concerns, since “cryptocurrencies have become sentiment barometers on central banks’ aggressive monetary policy.” Basically, such policies “have lowered interest rates and bond yields below the inflation rate, thus imposing negative returns on investors following inflation adjustment.”
Inflation Risk: Many observers, Paolini points out, fear that the monetary authorities are gradually monetizing public deficit — which is a potential problem since, as underlined by the Pictet AM expert, “historically, debt monetization has been the harbinger of runaway inflation.” Furthermore, Bitcoin has recently shown a slightly positive association with stocks and gold, as well as a negative connection with U.S. Treasuries and dollar. These elements add to its attractiveness in the eyes of investors, along with Tesla Inc. (NASDAQ:TSLA) and Mastercard Inc’s (NYSE:MA) opening up to facilitating purchases in Bitcoin.
The Obstacles: However, explains Paolini, the road to replace currencies is still long ahead because, for example, about 20% of existing bitcoins are stuck in a limbo, due to the loss of access passwords or hardware issues. Another limit is represented by the limited number of transactions – from 3 to 9 per second – that the blockchain (the database used to record Bitcoin transactions) can carry out. Not to mention their high price volatility and energy consumption. As a matter of fact, Bitcoin mining electricity consumption is higher than the whole of Argentina.
Speculative Investment: “Many things may not work for Bitcoin, so that it is difficult to judge the digital currency as anything other than one of the most speculative investments,” says Paolini. Furthermore, according to the expert, “the more Bitcoin attracts speculative interest of amateur investors, the more regulators – whose task is to protect them, – are likely to intervene”, perhaps undermining the aspect of anonymity. Besides, governments may develop digital currencies capable of competing with Bitcoin, as underlined by the U.S. Treasury Secretary Janet Yellen, who spoke of the digital dollar as a project “absolutely worth looking at.”
This article originally appeared on Financialounge.com and was translated from Italian to English. It does not represent the opinion of Benzinga and has not been edited. For news coverage in Italian or Spanish, check out Benzinga Italia and Benzinga España.
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