Updated 27 May, 2021

Deutsche Bank Says Bitcoin’s Value is Based on “Wishful Thinking”

Deutsche Bank

Key Takeaways:

  • Deutsche bank analyst publishes a report after the crypto market meltdown
  • As soon as early next year, the bank expects the crypto market to be regulated

Deutsche Bank Report Comes In The Midst Of A Downward Trend From Bitcoin

Deutsche Bank analysts last week came out with a report bashing the recent rally in crypto land. With Bitcoin in the lead, the digital asset market this year reached a market capitalization of over $2.5tn. This goes up more than 200% from the levels around $775bn in January.

Bitcoin’s price, however, plunged more than 30% in a day last week. This comes following an announcement from China that the government has banned all financial institutions from transacting in cryptocurrency. The move by Chinese regulators delivered a strong blow. Elon Musk said Tesla will no longer accept Bitcoin as payment for its vehicles due to the increasing carbon footprint from mining the cryptocurrency.

Adding to the downside pressure, Deutsche Bank analysts released a research note with the title: “Bitcoin: Trendy is the last stage before tacky,”. This is a reference to famous quote by the late fashion icon Karl Lagerfeld. Marion Laboure, an analyst at Deutsche Bank, suggested that “wishful thinking” is responsible for the stratospheric rise in the price of Bitcoin this year.

“Bitcoin’s value will continue to rise and fall depending on what people believe it is worth,” she wrote in a note to clients last week. “This is sometimes called the ‘Tinkerbell Effect’. It is a recognized economic term based on Peter Pan’s assertion that Tinkerbell existed simply because children believed she existed. In other words, the value of bitcoin is entirely based on wishful thinking,” she said.

Why Did Bitcoin Get Such a Bad Rep By the Bank?

“What’s true for glamour and style might also be true for bitcoin,” the analyst wrote. “Just as a ‘fashion faux pas’ can happen suddenly, we just received the proof that digital currencies can also quickly become passé.”

The comments by Ms. Laboure referred to the cryptocurrency meltdown experienced last week. “All it took for the cryptocurrency to fall out of style was one tweet and a Chinese government statement,” she wrote. Deutsche Bank’s Laboure went further to mention that she expects central banks around the world to implement regulations over the crypto market early next year. Some central banks, such as the US Federal Reserve and the European Central Bank, could launch their own digital currencies as a way to preserve monetary monopoly.

“In the end, regulating cryptocurrencies is not that difficult,” Ms. Laboure wrote. She noted that sovereign currencies, issued by central banks, will most likely be protected by their governments. This will be done in order to maintain the fiscal monopoly. This could mean that governments will impose harsh taxes on bitcoin. Cryptocurrencies as the digital asset market moves forward.

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