“I could potentially see Bitcoin to become the 21st century gold”
Crypto-currencies’ market cap of more than one trillion us dollars makes them too important to ignore. Marion Laboure, Analyst at Deutsche Bank Research, tells us how the development of digital currencies will shape the future of payments.
Video: Is Bitcoin the 21st century gold?
Why can’t I use Bitcoins to buy food or clothes?
You can. But only in a limited number of shops at the moment. Over the past year, the trend has been for more venues to accept many different types of payments. An increasing number of shops now accepts crypto-currencies, but Bitcoin or Ethereum are not really common forms of payment. Although the latest developments will allow faster and cheaper transactions, it takes about ten minutes to validate most transactions using Bitcoin. And it’s expensive: the transaction fee has been at a median of about 20 US-dollars in 2021.
How is Bitcoin different to the dollar or the euro?
Well, Bitcoin and fiat currencies (such as the dollar and the euro) are very different types of assets. Traditional currencies are backed by an entire government and they are also legal tender. This means that it is a legal obligation to accept them as a means of payment – which is not the case for any private crypto-currency. El Salvador being the sole exception since their decision to adopt Bitcoin as legal tender recently.
Why do many people see Bitcoin as a protection against inflation of currencies?
The supply of Bitcoins is fixed. The maximum number of Bitcoins that will ever exist is just under 21 million. And round about 89 percent of the total supply of Bitcoin is already in circulation. In many fiat currencies central banks control the supply and have been increasing it significantly in recent years.
Round about 89 percent of the total supply of Bitcoin is already in circulation
If you don’t consider Bitcoin to be a means of payment and it has deflationary characteristics, could it then be a safe haven asset? A type of digital gold?
People have always sought assets that were not controlled by governments. Gold has had this role for centuries. And yes, I could potentially see Bitcoin to become the 21st century digital gold. Let’s not forget that gold was also volatile historically. But it is important to keep in mind that Bitcoin is risky: it is too volatile to be a reliable store of value today. And I expect it to remain ultra-volatile in the foreseeable future.
I see basically three reasons for this: First, about two-thirds of Bitcoins are used for investments and speculation. Second, due to its limited tradability, just a few additional large purchases or market exits can significantly impact the supply-demand equilibrium. Third, Bitcoin’s value will continue to rise and fall depending on what people believe it is worth. Small changes in investors’ overall perceptions about Bitcoin can have a large impact on its price.
Why are Bitcoin and Ethereum so different?
Bitcoin is clearly the pioneer, and the most traded crypto. Its market cap is ways bigger than the market cap of the number two Ethereum, which offers many applications and use cases, such as decentralized finance (DeFi) and non-fungible token (NFT). If Bitcoin is sometimes called “digital gold”, Ethereum would then be the “digital silver”!
If Bitcoin is sometimes called “digital gold”, Ethereum would then be the “digital silver”!
What are the main disadvantages of crypto-currencies?
The main issue with crypto-currencies is the lack of regulation. While it was a very important advantage for first users, it prevents many investors or businesses from entering the market today. Second, the ecological footprint of cryptos is disastrous. As of early 2021, Bitcoin’s annual electricity consumption puts it at the edge of being the equivalent of a top 30 country. For example, in one year, it uses around the same electricity as the entire population of Pakistan (c.217m people)!
In one year, Bitcoin uses around the same electricity as the entire population of Pakistan (c.217m people)!
How could these challenges be overcome?
Latest technical developments will allow crypto-currencies to become greener. In terms of regulatory measures, we expect 2021 to be a game changer and that by 2022 many economies will have a strong crypto asset regulatory framework in place.
Can you imagine another crypto-currency to be stronger than Bitcoin and Ethereum in 5 years?
It seems very unlikely to me, because of the network effect. Bitcoin enjoyed first-mover advantage, and is now the most traded and well-known crypto-currency. And Ethereum has several real applications as we stated earlier.
What are the differences between Central Bank digital currencies (CBDC) and cryptos?
In contrast to cryptos, Central bank digital currencies (CBDC) are fully centralized, issued by a legal entity and bound by regulatory framework. On the contrary, crypto-currencies are decentralized, with a transaction ledger visible to all.
Most G20 countries plan to impose stricter regulations on private crypto-currencies
Will CBDC replace cash and/or cryptos?
I don’t think so. CBDC, cash and cryptos will coexist. Cash will certainly not disappear, but we expect it to decline as a mean of payment. Most G20 countries plan to impose stricter regulations on private crypto-currencies. Over the past three years, central banks and governments around the world have multiplied and sped up digital cash initiatives.
About Marion Laboure
Marion Laboure is a senior economist and market strategist at Deutsche Bank. She also lectures in finance and economics at Harvard University. Marion has extensive private sector, public policy, monetary policy and academic experience. She is the co-author of two books on capital markets, and she has lectured in economics and finance at Harvard Kennedy School, Yale University, Sciences-Po Paris, and University Paris Dauphine. Business Insider named her one of eleven crypto-currency masterminds this year.
has been Head of Communications for Deutsche Bank in France for 12 years. He has always been passionate about financial innovation, even well before Bitcoin was created.
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