According to Luca Paolini, Chief Strategist at Pictet Asset Management, Bitcoin Still has too many disadvantages, starting with the sustainability of the mining industry.
In mid-March, Bitcoin crossed the $ 60,000 threshold for the first time and has been hovering around $ 58,000 for several days. This recent surge has brought attention to the mainstream cryptocurrency, while investors from all over the world have begun to question again – as usual – if Bitcoin can be viewed as a real investment vehicle.
Monetary Policy Barometer: Luca Paolini, Pictet Asset ManagementRussia’s chief strategist dwelled on the pros and cons of Bitcoin, concluding that it is unlikely to become a real investment vehicle and much less likely to replace the dollar. According to Paolini, it is no coincidence that the value of bitcoins has risen along with fears of inflation, as “cryptocurrencies have become a barometer of sentiment amid aggressive monetary policy by central banks.” In essence, such a policy “reduced interest rates and bond yields below inflation, resulting in negative returns for investors after adjusting for inflation.”
Inflation risk: Many observers, Paolini notes, fear that monetary authorities are gradually monetizing government deficits, which is a potential problem because, as noted by Pictet AM, “historically debt monetization has been a harbinger of runaway inflation.” Additionally, Bitcoin recently showed a slightly positive relationship with stocks and gold, as well as a negative relationship with US Treasuries and the dollar. These elements make it attractive to investors as well as Tesla Inc. (NASDAQ: TSLA) and Mastercard Inc (NYSE: MA) opens to facilitate Bitcoin purchases.
Obstacles: However, Paolini explains, the road to changing currencies is still a long one, because, for example, about 20% of existing bitcoins are stuck in limbo due to loss of access passwords or hardware problems. Another limit is represented by the limited number of transactions – between 3 and 9 per second – that the blockchain (the database used to record bitcoin transactions) can execute. Not to mention their high price volatility and energy consumption. In fact, the electricity consumption of bitcoin mining is higher than in all of Argentina.
Speculative investments: “A lot of things may not work for Bitcoin, so it’s hard to judge digital currency as anything other than one of the most speculative investments,” says Paolini. In addition, according to the expert, “the more bitcoin attracts speculative interest from hobbyist investors, the more regulators whose job it is to protect them is likely to intervene,” which may undermine the aspect of anonymity. In addition, governments can develop digital currencies that can compete with bitcoins, as US Treasury Secretary Janet Yellen emphasized, who called the digital dollar a project “absolutely worth looking at.”
This article originally emerged on the Financialounge.com and has been translated from Italian to English. It does not reflect Benzinga’s views and has not been edited. For news in Italian or Spanish, see page Benzinga italia and Benzinga España…
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