Earlier this month, Goldman analysts took aim at most of the main arguments for why Bitcoin would succeed.
This morning, it’s UBS’ turn.
In a new note, a team led by analyst Derek De Vries douses Bitcoin’s potential.
“Bitcoin faces economic, technical and regulatory challenges as a true currency,” UBS says. “Bitcoin’s speculation-driven volatility prevents it from being a stable store of value or unit of account, and its semi-fixed supply exacerbates volatility and deflationary pressure. As a means of exchange, it already consumes vast computing resources for relatively few transactions and faces scaling difficulties. Bitcoin also exists in something of a regulatory vacuum, or in some jurisdictions it is restricted or outright banned (e.g. in China, Russia) — which can be damaging to trust and sentiment.”
While statements from the financial world have have ranged from restrained optimism to the strongly negative, even the most tepidly bullish have concerns. “No major bank is backing Bitcoin,” they write.
When asked about major Russian search engine Yandex’s attempt to develop an e-commerce payment system, [Russia-based OAO Sberbank CEO German] Gref said that ‘these experiments must end in one or two crashes.’ Thus, while Bitcoin supporters have found an ally in Sberbank, the bank’s support only appears to go as far as trying to prevent Russian governmental interference, and not actual involvement in Bitcoin operations.
Like Goldman, they are more upbeat about the concept — but add that a third party could separate Bitcoin from its own underlying technology.
“A bitcoin-like system could provide enhanced security and lower costs, by giving users direct control of their funds and the ‘private key’ which is used to ensure security through encryption. In principle, this kind of payment system could be developed and put into use by a third party — even a (possibly online-only) challenger bank that could appropriately handle deposits — which could potentially be a threat to existing banks.”
Oh and they include this chart:
Bitcoin prices dipped below $US500 this morning, nearly four months to the day after they hit $US1,000.