Deutsche Bank reports that Bitcoin is “too important to ignore”

Little by little the tide is changing and those previously critical of bitcoin seem to have moved position of it following an influx of institutional money and growing adoption over the past year.

In a recent Deutsche Bank report part of their ‘The Future of Payment’ series, titled ‘Can the Tinkerbell Effect Become a Self-Fulfilling Prophecy’, analyst Marion Laboure states that Bitcoin is now “too important to ignore.”

The report came after Bitcoin’s market cap breached the $1 trillion benchmark. Laboure jjustifiess the recent bull run by the Tinkerbell Effect, which is a term used to describe the power of belief. When applied to Bitcoin, one can reason that Bitcoin is valuable just because people believe it is.

The Deutsche bank report stated:

“Bitcoin’s market cap of $1 trillion, and scope for a continued rise in prices, makes it too important to ignore. 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.”

While according to the report, the price of bitcoin could continue to rise as long as it continues to attract asset managers and companies to enter, Bitcoin will remain a highly-volatile asset due to its low liquidity. Bitcoin’s current daily trade volume is just 1.9% of that of gold, despite being the third-largest currency by circulation.

“Importantly, small changes in investors’ overall perceptions about Bitcoin can have a large impact on its price, especially because relatively few bitcoins are in circulation. So, if several pension funds or large asset managers with trillions of dollars decide to allocate a few basis points of their portfolios in a cryptocurrency, it can have a very large impact,” the report noted.

In the report, Deutsche Bank also estimates that less than 30% of transactional activity in bitcoin is related to payments. In 2020, for example, 28 million BTC changed hands, equivalent to 150% of the total bitcoin in circulation. Meanwhile, 40 billion Apple shares were exchanged, equating to 270% of the total.

Furthermore, the average number of BTC exchanged daily in U.S. dollars is equivalent to only 0.05% of yen and 0.06% of GBP that do so.

The report cautiously concludes that Bitcoin is not a current threat to existing financial systems. Although the digital asset is growing to become an important store of value and means of payment, it may have to contend with government-issued digital assets and other centralized offers from for example Facebook.

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