Francisco Blanch, Bank of America’s head of global commodities and derivatives research, warned that cryptocurrencies have major inherent risks and urged investors against optimism about bitcoin’s rising value, according to Bloomberg.
He said cryptocurrencies remain prone to fraud, theft, new protocol adoption and lack of acceptance. He also pointed out that it is not legal tender in many parts of the world.
For bitcoin to thrive, he said it needs to become a pledgeable collateral. He further noted that bitcoin must be viewed as safe to become a trusted store of value.
Bitcoin trading, meanwhile, has increased to more than $1 billion daily in recent months. On some days, trading has surpassed $2 billion.
Volatility Still High
Blanch said bitcoin’s volatility lessens as it builds liquidity and scale. But its volatility remains higher than emerging market currencies. In addition, he said, cryptocurrencies do not correlate with gold, oil, Group-of-10 currencies or equities.
Cryptocurrency returns rely on price appreciation that will mainly depend on faith from financial institutions, corporations and individuals, he said. Bitcoin currently trades at more than $2,500 per coin, which more than doubles the price at the beginning of the year.
Most regulated financial companies permit clients to borrow against physical and financial assets, but they do not take cryptocurrency as collateral at the present time, Blanch observed. This view matches that of Morgan Stanley analysts who stated in June that government acceptance is needed for cryptocurrency appreciation, coming at the cost of regulation.
BofA Aligns with Morgan Stanley
Morgan Stanley stated in a white paper in June that both investors and regulators view cryptocurrencies as assets more than actual currencies. The analysts, including James Faucet, stated that bitcoin and other cryptocurrencies, such as Ethereum and Ripple, are more like “investment vehicles” than fiat currencies that people can spend on products and services. Morgan Stanley analysts added that bitcoin represents a “marginally more inconvenient way to pay,” and there are only a handful of reasons to use the cryptocurrency instead of a credit or debit card.
Morgan Stanley could only list some “guesses” about the price increase of bitcoin. According to the report, the analysts do not have a clear reason why the cryptocurrency has been on a massive surge.
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