Global financial firm Allianz recently published a harsh assessment of Bitcoin. Stefan Hofrichter, Head of Global Economics & Strategy at Allianz Global Investors, writing under the category of investment themes and strategies, is of the opinion that Bitcoin is a huge fail. A bubble getting ready to pop;
“In our view, its intrinsic value must be zero: a Bitcoin is a claim on nobody – in contrast to, for instance, sovereign bonds, equities or paper money – and it does not generate any income stream. Admittedly, one could make the same argument about gold, but gold has been widely accepted by humankind as a thing of value for more than two-and-a-half thousand years – compared to less than a decade for bitcoin.”
The author bullets out the justification for a tulip like bubble:
Moreover, Bitcoin ticks all of the boxes that we consider to be essential criteria of any asset bubble:
- “New-era” thinking. Bitcoin is perceived to be an entirely new kind of currency and a monetary innovation in the internet age.
- Overtrading. Trading volumes have increased by almost fivefold in the last five years, according to BIS data.
- Ultra-easy monetary conditions. Accommodative policy is still in place globally, despite a series of rate hikes by the US Federal Reserve.
- A lack of financial regulation. The “Wild West” bitcoin environment is only gradually being addressed by regulators around the world.
- The launch of related financial instruments. New products related to the bubbling asset class are popping up – from CBOE and CME futures contracts to the launch of “ICOs” (initial coin offerings).
- Rising leverage. Not only has private-sector leverage increased to record highs globally, but leveraged speculation in bitcoin is increasing.
- Swindles. Bitcoin has become the instrument of choice for many criminals, thanks to its ability to exist entirely outside of traditional banking channels.
- Significant overvaluation. Many other asset classes are pricey in today’s market, but bitcoin’s valuation seems to be without peer.
While Hofrichter may be a Bitcoin hater, he is a Blockchain believer.
“… Blockchain (or distributed-ledger) technology clearly has potential merits – not least of which is blockchain’s ability to reduce significantly the costs of verifying transactions and networking.”
So is Allianz’s assessment correct? Is Bitcoin going to zero? Time will tell.