Head of Global Investment Research, Steve Strongin, pointed to the recent loss of nearly $500 billion in market value for cryptocurrency as evidence that most digital coins will likely not survive in the long term. Only a small few, he stated in the February 5 report, will be left standing when the cookie crumbles, though he isn't sure when this will happen.
"The high correlation between the different cryptocurrencies worries me," he's quoted as saying by Bloomberg.com. "Because of the lack of intrinsic value, the currencies that don't survive will most likely trade to zero."
While offering no comment on a similar situation for Federal Reserve Notes (or what many people refer to as dollars), which are similarly backed by nothing and intrinsically worthless, Strongin dredged up other evidence that he believes points to an eventual collapse of nearly all cryptocurrencies – one being ongoing security challenges posed by hackers.
There have been several breaches in recent months, where large amounts of cryptocurrency were stolen or "vanished" due to hacking or manipulation. One example of this occurred back in December when a Bitcoin marketplace known as NiceHash experienced a breach in which roughly 4,700 Bitcoins were stolen.
Other problems include high maintenance costs and slow transaction times, the latter being especially problematic for Bitcoin as the platform is only able to handle less than a dozen transactions per second. This makes using Bitcoin for everyday transactions such as at the grocery store a bit of a challenge, especially on a global scale.
While he admittedly has an obvious bias, Strongin does bring up some important questions about the future of the more than 1,300 cryptocurrencies and initial coin offerings (ICOs), and counting, that are currently circulating the digital realm. How many of these will really stand the test of time, and can people be confident in their longstanding value?
"Are any of today's cryptocurrencies going to be an Amazon or a Google, or will they end up like many of the now-defunct search engines?" Strongin asked, rhetorically. "Just because we are in a speculative bubble does not mean current prices can't increase for a handful of survivors. At the same time, it probably does mean that most, if not all, will never see their recent peaks again."
Whether or not Bitcoin is included among the survivors or the failures remains to be seen. But the takeaway for everyday investors is that the cryptocurrency world is still very much uncertain, even for big players like Bitcoin that are most well-known in everyday social circles.
Strongin has a much more positive view of the blockchain technologies that serve as the transactional foundation for cryptocurrencies like Bitcoin. In his opinion, such technologies offer a wealth of improvement for financial ledgers, though he remains cautious about current iterations of blockchain technology that he believes are lacking both in speed and usability.
"People seem to be trading cryptocurrencies as though they're all going to survive, or at least maintain their value," Strongin adds.
"The high correlation between the different cryptocurrencies worries me. Contrary to what one would expect in a rational market, new currencies don't seem to reduce the value of old currencies; they all seem to move as a single asset class."
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