Tesla’s $1.5 billion Bitcoin purchase may have finally pushed cryptocurrencies onto the radar of huge financial institutions, but not necessarily onto their balance sheets.
This was one of the inferences implied by Chi Lo, Senior Strategist at BNP Paribas Asset Management. According to the exec, “crypto prices will eventually crash,” triggered by a shift in monetary policy or regulations.
In a blog published on the BNP Paribas website, Lo addressed the rising popularity of cryptocurrencies as an asset class and critiqued its use as a currency. According to Lo, Bitcoin is not money, nor is it a store of value, but rather a “vehicle for speculators.”
In fact, the analyst believes that the reasoning behind Bitcoin’s popular ‘store of value’ narrative is flawed in the sense that Bitcoin’s fixed supply is a problem for the asset and not necessarily a benefit. He argued,
“Contrary to the conventional wisdom that the finite supply of bitcoins and cryptos is a benefit and protects value, it is in fact a big problem for them being considered as money.”
The maximum number of Bitcoins that can ever be mined is 21 million. In the said blog, Lo claimed that these supply limitations make cryptocurrencies unsuitable as legal tender because a static money supply would deprive central banks of the ability to implement countercyclical policies.
The strategist’s final argument for his case against cryptocurrencies was that countries will take steps to protect their monetary systems and currencies and their ability to tax and manage the economy.
“The more people believe cryptocurrencies are money, the greater the risk of government intervention in this market,” he added, going on to say that the emerging trend of official digital currencies, or CBDCs, is a sign of central banks fighting back.
While crypto-proponents would certainly have a long list of counter-arguments to Lo’s statements, an unsettling reality could be the fact that there may be some truth to the last point he makes about government intervention. In countries like China, private cryptocurrencies are already frowned upon, with the nation also in the process of issuing its own CBDC on a wider scale soon.
On the contrary, banks like BNY Mellon have recently come out in support of cryptocurrencies offering custodial solutions for digital assets. Given its strategist’s thoughts on the matter, it is unlikely that BNP Paribas will do the same in the near future.
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