Deutsche Bank has issued a market briefing for 2018. The document, created by Chief International Economist Torsten Slok, lists 30 possible threats that could disrupt global markets next year. Alongside entries like “North Korea” and “Brexit”, is bitcoin. Its inclusion shows the extent to which the banking sector is eyeing the revitalized digital currency. While some institutional investors see bitcoin as an opportunity, many more consider it a threat.
Bitcoin Über Alles
With over 100,000 employees and annual revenue of $35 billion, Deutsche Bank is a global powerhouse. The company has had its share of controversies (it was fined $425 million for money laundering this year and another $258 million for violating sanctions in 2015), but it still exerts a sizeable influence over the global finance sector. When its Chief Economist speaks – especially when warning of possible market threats – the investment world takes notice.
Torsten Slok’s list of the 30 greatest risks markets face in 2018 makes for interesting reading. Entries, which appear in no particular order, include U.S. inflation increasing sharply, the Russian presidential election, and the housing bubble bursting. There’s one particular entry that stands out however – bitcoin. Specifically, the entry states: “Bitcoin crash, confidence impact on retail investors.”
Crash, Bang, Wallop
Torsten Slok’s chief concern with bitcoin is that newcomers – e.g institutional investors trading bitcoin derivatives – could get badly burned if there was a major crash. The possibility of a bitcoin crash certainly isn’t out the question; it, along with every other item on Slok’s 30-strong list, is a possibility. The inclusion of bitcoin alongside major global elections and market events shows the extent of bitcoin’s remarkable rise. At the start of 2017, few could have predicted that bitcoin would have morphed into a global threat being taken seriously by financiers come year-end.
On Thursday, Deutsche Bank posted a presentation regarding digital currencies on its website which stated:
We rank cryptocurrencies as a risky investment because recent price increases are in part based on speculation. Volatility is very high and reached 80% and the whole sector is generally unregulated…. there is an appreciable risk of major losses.
What Deutsche Bank’s risk list fails to consider is the other threat faced by bitcoin: that the digital currency sucks air out of the rest of the banking sector. Bitcoin isn’t about to render every other global asset class obsolete. Nevertheless, if it were to continue its stellar ascent, investment banks face a quandary. No other stock, bond, or equity in history has performed as well as bitcoin this year. Traditional assets that promise a 6-8% return look decidedly tame in comparison.
If bitcoin was to significantly crash in 2018, it would scare off some of the new money that’s been poised to pour into the space ever since bitcoin futures were announced. True believers, who’ve been hodling the real thing – not just contracts – since before bitcoin was cool won’t be shaken out by a major correction however. They’ve experienced bitcoin bear markets in the past and will continue to have faith in the digital currency long after investment bankers have scampered off to find their next shiny thing.
Do you think bitcoin is a serious threat to the world’s financial markets? Let us know in the comments section below.
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