In brief
- Deutsche Bank analysts have said that Bitcoin's value is based on wishful thinking.
- The bank's comments come amidst the initial fallout of Bitcoin's major price crash.
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Bitcoin’s value is based on wishful thinking, argues a note published by Deutsche Bank analysts yesterday.
“What’s true for glamour and style might also be true for Bitcoin,” said Deutsche Bank’s Marion Labouré, adding, “Just as a ‘fashion faux pas’ can happen suddenly, we just received proof that digital currencies can also quickly become passé.”
The bank’s comments come amid the immediate aftermath of Bitcoin’s major price crash earlier this week. Currently priced at $40,900, Bitcoin is down 17% on the week, and 27% in the last two weeks.
Two major events have been linked to Bitcoin’s downturn. First, Elon Musk’s shocking Bitcoin U-turn, when he tweeted on May 12 that Tesla had stopped accepting Bitcoin as a payment over concerns about the cryptocurrency’s environmental impact.
“We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel,” Musk tweeted, adding that while he believes in cryptocurrencies, they cannot “come at great cost to the environment.”
Just under a week later, three Chinese payment associations backed the country’s ban on financial institutions from crypto transactions—a ban that has been in place since 2017. The three associations were the National Internet Finance Association of China, the China Banking Association, and the Payment and Clearing Association of China.
“Recently, cryptocurrency prices have skyrocketed and plummeted, and speculative trading of cryptocurrency has rebounded, seriously infringing on the safety of people’s property and disrupting the normal economic and financial order,” the three industry bodies said on May 18.
But Deutsche Bank’s note revives a debate about whether Bitcoin ever meant to be inherently valuable to begin with.
Bitcoin and intrinsic value
The question over Bitcoin’s intrinsic value often arises when the cryptocurrency’s price drops.
Proponents argue that Bitcoin’s price is the result of more than a decade of energy-intensive proof-of-work mining, and a testament to the censorship-resistant, wholly decentralized, always-on payments network. Critics argue that Bitcoin’s a huge waste of energy and that the market is run by highly suspect companies.
Either way, ever since the world’s largest fiat currencies dumped the gold standard, the only real source of value for fiat currencies comes from consumer confidence, much like Bitcoin. And if Bitcoiners are defined by one thing, it’s their confidence in their favorite cryptocurrency.