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Cryptos: Bitcoin has gone from stylish to tacky, says the Deutsche Financial institution analyst

The late mogul Karl Lagerfeld is not an obvious person when it comes to financial markets. On the other hand, Bitcoin is hardly a conventional financial asset.

According to Marion Laboure, Deutsche Bank analyst and professor at Harvard University, Lagerfeld's claim that "trendy is the last phase before tacky" could be a useful framework for analyzing Bitcoin.

The London-based analyst said the slump in the cryptocurrency space on Wednesday, including an 11% decline in Bitcoin
BTCUSD,
+ 1.75%,
was proof that digital currencies can quickly become a thing of the past. "It took Bitcoin only three months to go from trendy to cheesy, and all it took for the cryptocurrency to go out of style was a tweet and a statement from the Chinese government," said Labore.

The tweet was from Tesla
TSLA,
+ 4.14%
Chief Executive Elon Musk when he said the electric car company would no longer use bitcoin as a means of payment due to environmental concerns, and the statement came from the People's Bank of China when it said digital tokens are banned as a means of payment.

"Bitcoin's value will continue to rise and fall based on what people think is worth," Laboure wrote in a statement to customers. "This is sometimes referred to as the 'Tinkerbell Effect' – a recognized economic term based on Peter Pan's claim that Tinkerbell existed simply because children believed it existed. In other words, the value of Bitcoin is based entirely on wishful thinking." , she said.

Cryptocurrencies as a widespread means of payment are unlikely. Labore estimates that less than 30% of Bitcoin's transactional activity is in payments for goods and services, with the bulk of it being financial investments. Bitcoin's liquidity is low – 28 million bitcoins changed hands in 2020, or 150% of the total bitcoins in circulation, compared to 40 billion shares in tech giant Apple
AAPL,
+ 2.10%,
or 270% of its total shares.

Bitcoin's limited tradability will keep it extremely volatile as some large purchases or market entries can significantly affect the balance.

And that's before governments step in that "are unlikely to give up their currency monopolies," Labore said.

Governments are working on their own digital currencies, and regulation is coming.

It was China's replay that cryptocurrencies cannot be used for payments that triggered the decline on Wednesday. After this article was first published, the Treasury recommended reporting crypto transactions over $ 10,000 to the government.

The European Union has proposed the MiCar [Markets in Crypto-Assets Regulation] regulation, which could come into effect as early as the end of 2021, and India has strictly regulated cryptocurrencies.

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