UBS’ Global Chief Economist Argues Crypto Is ‘Fatally Flawed,’ But He’s Wrong
The global chief economist for UBS Wealth Management and bitcoin skeptic has said cryptocurrencies are "fatally flawed," and that they'll never become currencies.
British economist Paul Donovan was speaking on CNBC's Fast Money segment when he made his comments. His remarks follow an internal blog he released earlier this week, titled "I come to bury bitcoin, not praise it."
Talking about the "designers" behind cryptocurrencies, he argued in the post that they "appear to know nothing about economics." Doubling down on his criticism for the nascent financial tool, Donovan said to the network:
I think anyone with a high school education in economics has been a bitcoin skeptic right from the start. These things were never going to be currencies. They're not going to be currencies at any point in the future. They're fatally flawed.
His remarks come at a time when the crypto market is rebounding in value after a dip in market prices over the last two weeks. Last weekend, bitcoin fell to its year-to-date low around $3,200 following several months of relative stability within the $6,200 and $6,800 range. At the time of publishing, bitcoin is trading at $4,033, having dropped over 7.5% in the last 24 hours, according to CoinMarketCap.
In Donovan's opinion, "it was fairly obvious that this was going to end badly."
Talking about the crypto "bubble" - which has been uttered by naysayers such as Jamie Dimon, CEO of JPMorgan, Warren Buffett, CEO and chair of Berkshire Hathaway, and 'Dr Doom' economist Nouriel Roubini - Donovan said that it came about because there was "something innovative, something new in terms of technology," which saw a lot of hype coming out, he added.
Yet, while he remains skeptical of cryptocurrencies and the benefits they can bring, he appears to believe in the technology behind it, adding:
The underlying technology of blockchain, the distributed ledger system, that's different. There's an economic proposition there. Again there's a certain amount of hype around it, but to go from that to bitcoin is going to replace the dollar is quite a leap.
China is another example that is embracing the blockchain, but continues to shun crypto, in what Edith Yeung, head of 500 Startups' China unit, has called a "love-hate relationship."
What About the Fiat System?
But while Donovan claims that crypto is flawed, isn't the fiat monetary system flawed too?
What about the disenfranchised population who can't gain access to a traditional bank account because they don't have the right paperwork to prove where they live or who they are? Or what about the countries that are going through economic turmoil?
Cryptocurrency provides a link to these barriers, helping countless populations.
Take, for instance, those in Venezuela, where inflation is forecast to reach 1,000,000% in 2018, Zimbabwe or Turkey. For these people, where buying the most basic of things requires a large bag full of notes, the crypto market is providing an alternative answer. For them, it has become a store of value, something their national currency lacks.
So when the likes of Donovan claim that crypto is flawed, maybe they should look closer to home.
Yes, the crypto market may be down from its all-time highs in 2017, but it's certainly not out. And as Jeff Sprecher, chair of the New York Stock Exchange (NYSE), said on Wednesday, digital assets are here to stay.