A senior economist at the Vanguard Group, the $5 trillion investment fund, is the latest market participant to pour cold water on the No. 1 digital currency.
In an op-ed Monday, Joe Davis said bitcoin
is not a currency, it makes for a poor investment choice and its biggest threats are the very institutions it was meant to overthrow.
“Over the past few months, I’ve gotten this question more than any other,” wrote Davis. “As for bitcoin the currency? I see a decent probability that its price goes to zero.”
The head of the Vanguard Investment Strategy Group argues that bitcoin does not meet the criteria of a currency — which its creator(s) and proponents believe it to be — saying it’s a dubious medium of exchange and its excessive volatility does not make it a suitable store of value.
Davis, who works for the largest mutual-fund provider and second-largest provider of exchange-traded funds, said bitcoin doesn’t stack up as a traditional investment. “Unlike stocks and bonds, currencies generate no cash flows such as interest payments or dividends that can explain their prices,” wrote Davis.
He added that by adding bitcoin to a portfolio, you would have to reduce a “tried and true asset class.”
While supporters of bitcoin and other digital assets see the technology as an alternative to central banks, Davis said bitcoin is not a true threat to them, arguing that there’s a good chance central banks will eventually adopt their own digital currencies, and will have the upper hand because they impose the regulations on exchanges.
Like many cryptocurrency naysayers, Davis was more positive on blockchain, the distributed ledger technology that underpins bitcoin and other cryptocurrencies, but said the two do not go hand-in-hand like some argue.
“Although cryptocurrencies are built using a blockchain, they are not necessarily tied to the value of blockchain applications that may improve the cost, speed and security of executing transactions or contracts,” wrote Davis.
“Bitcoin is an investment in blockchain in the same way that Pets.com was an investment in the internet.”