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A chief economist at UBS, the largest bank in Switzerland, says cryptocurrency has a fundamental flaw. Bitcoin\u2019s fixed supply could cause the collapse of its value and spending power, making it unattractive to use as a currency, he claims.<\/strong><\/p>\n Paul Donovan, Chief Economist of UBS Global Wealth Management, explained last week why people won\u2019t want to use bitcoin as a currency. UBS is the largest bank in Switzerland.<\/p>\n \u201cThe debate about bitcoin and other crypto tends to be very passionate. Crypto supporters say that economists are just dinosaurs, and economists say that crypto supporters are just selling a bubble.\u201d He also pointed out that bitcoin and other cryptocurrencies have been volatile in price terms.<\/p>\n \u201cIf we look objectively at the issue, I think an important question is whether bitcoin and other crypto could be currencies,\u201d the UBS chief economist continued, emphasizing, \u201cAnd, I don\u2019t think that they can.\u201d<\/p>\n He explained that \u201cOne of the key reasons for that is that a currency has to be a stable store of value. With a proper currency, you got a genuine certainty that the basket of goods you can buy today is going to be the same as the basket of goods that you can buy tomorrow.\u201d<\/p>\n However, he asserted that \u201cWith bitcoin and other crypto, you don\u2019t have that certainty.\u201d The UBS chief economist explained:<\/p>\n It\u2019s all down to a rather fundamental flaw with crypto. In order to achieve stable spending power, a store of value, the balance of supply and demand needs to be maintained.<\/p>\n<\/blockquote>\n \u201cSo, if demand for proper currency goes down, the central bank can reduce supply, maintaining the balance and therefore maintaining spending power,\u201d the UBS chief economist opined. However, he did not differentiate between cryptocurrencies with a fixed supply, like bitcoin, and other coins without a fixed supply, including stablecoins.<\/p>\n <\/ins> <\/ins> <\/p>\n Donovan continued:<\/p>\n But if demand for crypto goes down, and self-evidently it does, the supply cannot go down to maintain balance. So, the value, and the spending power, immediately collapses.<\/p>\n<\/blockquote>\n \u201cIt might collapse for a short period of time or it might collapse for a long period of time. But people are unlikely to want to use something as a currency if they got absolutely no certainty about what they can buy with that tomorrow,\u201d he concluded.<\/p>\n Many financial strategists, on the other hand, have said that bitcoin\u2019s volatility falls<\/a> as adoption increases. Fidelity recently pointed out that BTC<\/a>\u2019s volatility is down about 50%<\/a> from a few years ago. In July, BTC<\/a>\u2019s volatility hit a three-year low<\/a>. Billionaire investor Bill Miller said bitcoin becomes less risky<\/a> the higher the price goes.<\/p>\nA UBS Chief Economist Says Bitcoin\u2019s Fixed Supply Is a \u2018Fundamental Flaw\u2019<\/h2>\n
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