UBS: Cryptocurrencies like bitcoin are ‘the bubble to end all bubbles’



There certainly is a pretty good case to be made for this. Of course the dollar based banks would be happy to see regulators come in and kill the cryptos. (If they could, and that is now a very open question.)

I see the crypto surge as a vast and highly entertaining experiment. One that is revolutionary in ways that most people couldn’t really conceptualize only a few years ago. A decentralized, mostly anonymous, instantaneous currency that allows people to work around the antiquated and all too often crony banks? That is an amazing thing, and that is what Bitcoin is.

The potential for cryptos in the developing world additionally is immense. Consider how hard it is to do business in (and with) some parts of the world. Bitcoin and its brethren help to alleviate some of this difficulty. Indeed in places like Venezuela (where the government has blown up the economy) people are turning to Bitcoin to do business. (Even with the volatility in price.) The same is true in other parts of the globe where the rule of law and economic stability are both in short supply. This part of the crypto equation is only just now getting worked out.

Are we in a bubble? We certainly could be. Are we in the midst of a financial revolution? We certainly could be.

(From CNBC)

UBS Wealth Management is not a believer in bitcoin becoming a legitimate currency even as the launch of futures lead some investors to believe the cryptocurrency will become a more stable market.

“The bubble to end all bubbles continues. Cryptocurrencies only have value if accepted as currencies. However, they cannot be used for the most important transaction in an economy, and cryptocurrency supply can only rise and never fall (making them a poor store of value),” global chief economist Paul Donovan wrote in a post Monday. “To date, using cryptocurrencies requires (effectively) a simultaneous asset sale and purchase of goods or services.”

The economist said in an October report that bitcoin’s extreme price volatility detracted from its ability to be a “store of value,” which is an essential feature of being a currency.

“A twenty-fold increase in bitcoin prices in just two years, and an absence of any fundamental economic backing, cryptocurrency prices are almost certainly a bubble,” he wrote in that report.

It is interesting that the economist at the Union Bank of Switzerland was concerned that Bitcoin “had no backing”. The dollar has no backing and yet for 2 generations, almost 3, we’ve been told that currencies don’t need backing. So which is it?

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