Share this article
While Citibank praised Bitcoin’s potential, Bank of America analysts released a damn indictment against the largest cryptocurrency.
You see a lot more promise in DeFi, however.
Bank of America bearish on Bitcoin
Central bank digital currencies are replacing Bitcoin
Several central banks are actively working on CBDC, countries like China and the United Arab Emirates are even preparing Interoperability between their national digital currencies. Bank of America described the move as “defending its territory against cryptocurrencies,” suggesting that CBDCs would quickly replace private cryptocurrencies whose use could be restricted.
After severe restrictions, the BoA adds that citizens will turn to CBDCs as they provide government support and a far less volatile asset to users.
Bitcoin is still too volatile
According to Bank of America, Bitcoin should already have matured as an asset. As was observed in the Covid crash in March last year, the massive fluctuations in value suggest that Bitcoin cannot be a store of value.
The company writes that Bitcoin’s volatility is higher than that of Forex, Gold or Silver and shows no signs of slowing down as 2021 is the second most volatile year to date.
Bitcoin is an environmental disaster
The price of Bitcoin is directly related to its energy consumption, argue BoA analysts. “Should prices rise to USD 1 million, Bitcoin could become the fifth largest emitter in the world, outperforming Japan.”
This is a very controversial claim as the truth is about Bitcoin’s environmental impact much more complex and not so directly correlated with price.
Whales dominate the crypto
The BoA reports that 2.4% of addresses hold 95% of Bitcoin supply while the rest are mostly empty, compared to the top 1% of Americans who own 30% of total household wealth.
This number does not take into account the fact that the majority of investors do not hold their own Bitcoin but often trust the exchanges to do so.
The problem with calculating bitcoin concentration using this metric is that an address is not necessarily a person. In the 2.4% number, these addresses can hold the money of thousands of customers. This can work both ways as there is also no limit to the accounts a person can open. An active dealer can use multiple addresses and, for example, leave some blank.
On-chain analytics firm Glassnode estimates the amount of Bitcoin held by each category of Bitcoin holders as follows (the numbers on the left represent BTC holdings):
Bitcoin doesn’t scale
The BoA compares Bitcoin’s total performance of around 300,000 transactions per day with the 236 million transactions per hour reported by Visa. Since trading is backed by mining to ensure the settlement process, the speed of the Bitcoin network is always limited, which limits the potential for scaling.
This does not take into account the efforts to develop the second layer of Bitcoin through projects like Lightning network, This effectively enables infinite transactions per second, limited only by the speed and capacity of the nodes.
In addition, Bitcoin transactions and Visa transactions are very different and users do not use them for the same type of transactions.
In Citibank’s report, its analysts argued that comparing Bitcoin and Visa transactions was comparable to comparing international trade transfers and buying cups of coffee. The two networks are used for very different purposes, and the value proposition of a decentralized blockchain network was not and is not the same as that of a credit card company.
Bank of America bullish on DeFi
Despite Bitcoin’s scathing analysis, the bank suggested that DeFi “could potentially be more disruptive than Bitcoin”.
According to their analysts, while DeFi still has a long way to go, it could challenge centralized financial institutions in the long term. They still highlight the problem of scalability in the Ethereum blockchain that developers are working on intensely on the Ethereum 2.0 release.
Disclaimer: The author was the owner of ETH and BTC at the time of writing.
Bitcoin’s price action rhymes with the gold markets of 1970, according to CitiBank
CitiBank MD and former FX technician Tom Fitzpatrick point out clear analogies between the gold market of 1970 and Bitcoin in their latest report “Bitcoin: 21st Century Gold”. History of Money …
Bank of America could explore Ripple Tech
Bank of America (BofA) has filed a patent describing an international settlement system based on Ripple’s distributed ledger technology. Bank of …
What is Dogecoin?
What’s the story behind DOGE? How did it become the preferred asset for a group of anti-establishment retailers in January 2021, and what are the odds …
Bitcoin is now bigger than Bank of America, Netflix, and Shopify
Bitcoin is now valued at $ 15,559 and a market cap of $ 288.3 billion. According to Asset Dash, Bitcoin is the 21st largest capital in the world by market capitalization. Bitcoin Beats …