UBS Takes Dim View of Cryptocurrency Outlook
Financial services firm UBS has issued a white paper that takes a dim view of cryptocurrency prospects, saying that they are in a “speculative bubble” and unlikely to hit the mainstream.
The firm said that it is “highly doubtful” that any cryptocurrency will ever become used for mainstream activities in the manner of fiat currency.
“The need for companies and individuals to pay tax receipts in government-issued currency, and the potentially unlimited crypto-money supply, pose significant barriers to widespread adoption,” the firm said.
The biggest bar to cryptocurrency is tax payments, according to UBS. Companies accepting cryptocurrency run the risk of the exchange rates changing drastically in the time between when goods are sold and tax payments. “If governments refuse to accept cryptocurrencies for tax payments, the single most important transaction in an economy, that significantly reduces demand for cryptocurrencies. Governments are highly unlikely to ever take this step.”
Although cryptocurrencies act as a store of value, the fact that there is the potential for an infinite increase in them via creation of new digital currencies could create a risk of collapse in value if a new cryptocurrency proves more popular than existing ones, UBS said.
UBS claimed that cryptocurrencies’ price increases meet its definition of a bubble. “The relatively high volume of cryptocurrency turnover, against limited real-world use, suggests that many buyers are seeking speculative gain, never intending to use cryptocurrencies to make a real-world transaction,” UBS said. “With each of the other characteristics of typical bubbles in evidence, 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.”
UBS added the almost-obligatory note that blockchain technology will have significant impact, even if cryptocurrencies do not. It likened its impact to the Internet, but added, “But for the time being, technological shortcomings still need to be resolved, it remains unclear which specific applications will prove most useful/profitable, and actual revenue and profitability associated with the industry is currently limited.”
