Bitcoin is Too Volatile, Impractical, and Fails as a Store of Value: Bank of America

Bitcoin’s extreme volatility and impracticality prevents it from serving as a store of value, argued researchers from the Bank of America.

While Morgan Stanley and JPMorgan have taken a more pro-BTC approach, another giant US financial institution, Bank of America, has issued a report bashing the asset. In it, researchers called bitcoin impractical, exceptionally volatile, and questioned its store of value status.

BoA Slams Bitcoin

Cited by the Financial Times, the Bank of America’s report on bitcoin took a stab at several attributes, including its highly volatile nature. The researchers claimed that this “exceptional volatility” makes the cryptocurrency “impractical as a store of wealth or payments mechanism.”

Furthermore, they asserted that speculators purchasing portions of the asset are the only reason behind its bull run that drove it from $10,000 to $60,000 in the span of several months. However, they believe that other asset classes have outperformed BTC in terms of a store of value capabilities.

“Broadly, we find that bitcoin has not been particularly compelling as an inflation hedge as commodities and even equities provide better correlation to inflation.

As such, we think the main portfolio argument for holding bitcoin is not diversification, declining volatility, or inflation protection, but rather sheer price appreciation, a factor that depends exclusively on bitcoin demand outpacing supply on a forward basis.”

Bank of America Building. Source: FinancialExpress
Bank of America Building. Source: FinancialExpress

BoA’s researchers also touched upon BTC’s environmental impact. They noted that the cryptocurrency, which requires a lot of energy consumption to be mined, uses as much electricity in a year as countries like Greece. This is something that Bill Gates also recently pointed out as a major drawback for bitcoin.

BTC’s (De)Centralization

Arguably one of the main attributes of bitcoin is its decentralization – meaning the lack of central authority behind it. However, the report breached another narrative that the cryptocurrency is actually quite centralized.

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The paper said that 95% of all bitcoins in circulation are owned by “just 2.4% of accounts,” which is a level of concentration that “makes this instrument impractical as a payments mechanism or even as an investment vehicle.”

Moreover, the researchers claimed that such large accounts, known as whales, have continued to accumulate in the past few months as well. However, this contradicts data from an on-chain analytics company, which recently pointed out just the opposite.

“Humpback” whales, meaning wallets with more than 10,000 coins, have reached a new all-time low of about 90 such addresses, meaning that BTC’s distribution has become substantially less concentrated.

Nevertheless, BoA’s negative stance on bitcoin comes amid intriguing times when other giant banking organizations have displayed a more open-minded approach. JPMorgan announced plans to launch an exposure basket for crypto-focused public companies recently, while Morgan Stanley will enable its institutional clients to buy BTC through three funds.

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