BofA on Bitcoin:
Bitcoin supply is artificially scarce, demand drives prices
Just like in other commodities, supply and demand drive Bitcoin prices. But there are twists. Bitcoin output is capped at 21mn coins and supply growth halves every 4 years. Itis designed to become increasingly constrained. So demand swings are key to price moves. Indeed, we show major institutional announcements and miner reward cuts have been followed by upward Bitcoin moves. Similarly, flows into the Grayscale Bitcoin Trust(GBTC) appear to lead weekly Bitcoin returns. A while ago, we argued a surge in trading liquidity was a key feature of the asset. Yet Bitcoin remains limited by its complex settlement process (crypto mining), and can just handle 14k transactions per hour relative to Visa’s stated 236mn.
No good reason to own BTC unless you see prices going up
Bitcoin has also become correlated to risk assets, it is not tied to inflation, and remains exceptionally volatile, making it impractical as a store of wealth or payments mechanism. As such, the main portfolio argument for holding Bitcoin is not diversification, stable returns, or inflation protection, but rather sheer price appreciation, a factor that depends on Bitcoin demand outpacing supply. Unlike other asset classes, our work shows liquidity bursts measured by the Amihud ratio caused positive Bitcoin returns.
Our Bitcoin ESG read: low on E, mixed on S and G
Few ESG providersfactorBitcoinexposure into ESG ratings. But its Environmental score is poor: the network emits today about 60mn tons of CO2, the same as Greece. Plus a$1bn fresh inflow into Bitcoin may cause CO2 to rise by the equivalent of 1.2mn ICE cars.
CBDCs are kryptonite for crypto, but DeFi is intriguing
A number of central banks (notably, the ECB) are talking about launching retail digital currencies that may use mainstream technology and operate on mainstream payment rails. Central Bank Digital Currencies (CBDCs) are aimed at protecting CBs against private sector stable coins (such as Diem), as CBsview Bitcoin et al as (spec) assets, not currencies.
Deutsche too:
− Bitcoin’s market cap of $1 trillion makes it too important to ignore. Big players who buy and sell bitcoins have considerable market-moving power. As long as asset managers and companies continue to enter themarket, Bitcoin prices could continue to rise.
−But bitcoin transactions and tradability are still limited. And the real debate is whether rising valuations alone can be reason enough for bitcoin to evolve into an asset class, or whether its illiquidity is an obstacle.
− Bitcoin’s value will continue to rise and fall depending on what people believe it is worth. This is sometimes called the Tinkerbell Effect — a recognised economic term stating that the more people believe in something, the likelier it is to happen based on Peter Pan’s assertion that Tinkerbell exists because children believe she exists.
−Central banks and governments understand that cryptocurrencies are here to stay, so they are expected to start regulating crypto-assets late this year or early next year. They are also speeding up research on their own Central Bank Digital Currencies (CBDCs) and launching pilots.
−In the medium to long run, due to very strong network effects, there will likely be little room for using cryptocurrencies as a widespread means of payment. The regulatory landscape related to CBDCs, current cryptocurrency projects, and future efforts (e.g. Libra/Diem by Facebook) is still uncertain.
BTC still looks like a glorified pyramid scheme.
