Richard Bernstein isn’t building any bridges with the cryptocurrency community.
The head of the Wall Street research firm that bears his name said in a note to clients today that there’s little difference between cryptocurrencies and the virtual currencies you earn with internet games like Candy Crush, according to a report on Bloomberg. CryptoKitties might not be the smash hit it was cracked up to be, but it might have been a more viable comparison considering it’s built on the Ethereum network.
As Ethereum co-founder Joseph Lubin recently explained to CNBC, the value, at least for ETH, can be compared to commodities like oil, which trades for a price and “is a fuel that powers the global commerce platform. He said: “The ether token is used to pay for computational steps and storage operations on the decentralized application platform that is Ethereum.”
Meanwhile, according to Bernstein, the difference between Candy Crush’s in-game currency and the cryptocurrencies that bitcoin miners create and earn in exchange for solving complicated puzzles comes down to the fact that digital currencies can be traded. The speculative nature of trading cryptocurrencies qualifies the market for a bubble, says Bernstein, pointing to the following features of digital currencies as proof –
- rising liquidity
- rising leverage
- new coins
- high turnover
Bernstein wouldn’t be the first person to call cryptocurrencies a bubble, with some cryptocurrency market veterans having said in the past that not all of them will survive. And according to Bernstein’s note, trading in a bubble doesn’t discredit the economic and business case of cryptocurrencies, though it “suggests that the return-on-investment could be considerably lower than investors currently expect.”
Bernstein is a Wall Street veteran, having previously served as Merrill Lynch’s chief investment strategist, and he’s weighed in on bitcoin before. He can analyze equity market analysts under the table, but when it comes to cryptocurrencies, he’s skeptical. Bernstein said in a note to clients in December:
“It is ironic that [investors] fear traditional equities, but they do not fear cryptocurrencies. One must remember that risk typically lies in what you’re invested in, and not in what you fearfully avoid.”
Bitcoin’s worth is derived from the value that people place on it, as it’s not backed by any asset. But bitcoin is moving more into the mainstream for payments with the Lightning Network and altcoins like Bitcoin Cash have accelerated transaction times. As for bitcoin’s other use case as a store of value, cryptocurrency trader Brian Kelly recently suggested that losing 25% from cryptocurrencies is “better than losing 100% … by a “rogue government.” Kelly is also of the opinion that the bitcoin price will attain a new high in 2018.
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