The document, written in the fall of 2017 and published in a Research network of social Sciences (SSRN) 12 January 2018, the pic Dietmar (Dietmar Peetz) and Gregory moll (Gregory Mall) from the Bank Credit Suisse, came to a paradoxical conclusion. They argue that the boom in the market of primary placements of tokens (ICO) indicator bitcoin bubble. According to Standard & Poor’s, Credit Suisse — one of the 40 largest banks in the world with total assets of more than $ 800 billion.
According to the Pizza and the Mall, bitcoin should not be considered as currency. Instead, we should mention it as a new asset class. The paper noted that the landmark price rise of bitcoin, which started in September 2015 and have intensified in July 2017, is clearly unsustainable in the long term. However, the document also notes: «There are arguments in favor of the continuation of this trend for some time.»
2017 was the year of ICO with this new method of financing startups worldwide managed to raise more than $ 5 billion. The basic idea of ICO lies in the fact that the company or project create a new token (usually standard ERC-20 Ethereum), which will have some practical application on the platform either under development or already available. The question about whether or not to consider such tokens as a means of investment or speculation, is still open.
«Token-ICO often traded at penny prices, and then are able to fly for several hours and often traded with very low liquidity,» the document reads Pizza and the Mall.
«Most of these companies offer so-called «white paper» — a business plan that explains what product the company wants to develop in the future and how she wants to sell it. Most of these promised projects are evaluated as having great potential, but it is not clear whether they ever actually implemented.»
The document also notes that these «ICO-the company» can continue to attract large sums of money in the short and medium term. As evidence of this assertion Pitz and moll point out that the amount received through ICO, has continued to grow even after the Commission on securities and stock exchanges of the USA last summer began to warn investors about the dangers of such investments.
In the document the irrational excitement around the ICO is also compared with the dot-com bubble. While Pitz and moll noted a key difference is that in the era of the dotcom, at least, there was a company that sells real products and registered the movement of funds.
The main question remains — is there a direct correlation between the price of the token and the level of success achieved by his platform.
«Most investors acknowledge the existence of a bubble», — the document says. «However, they argue that cheap loans from the Central Bank will help it to grow, thereby attracting more investors (speculators) who are seeking easy profit. They remain in the environment, hoping that there is someone dumber than them, who in the end will suffer».
The authorities can prevent the emergence of bitcoin as a currency
At the time, as some people use bitcoin or other cryptocurrencies, simply because they have no other option available to them for certain types of transactions, Pitz and moll argue that bitcoin is a transactional currency, mainly due to his inability to act as settlement currency.
Despite the fact that in the document there is a decrease in the volatility of the bitcoin in 2014 and the possibility of further decline due to the financing of the asset, Pitz and moll also argue that the currency can’t work as a clearing mechanism for payments, if it is impossible to accurately assess.
«Extremely high price volatility of bitcoin makes bitcoin unsuitable for existence as daily means of exchange», — the document says.
In addition to the lack of stability of prices, Pitz and moll also point to the many reasons why, in their opinion, the widespread use of deflationary asset can hurt the overall economy. Therefore, the paper argues that the authorities should prevent the conversion of bitcoin into currency.
Bubble of bitcoin can grow
So, what’s next? According to the Pizza and the Mall, bubble of bitcoins will be in existence for some time.
«We believe that the most realistic scenario for bitcoin is based on the assumption that cryptocurrency is not prevented major regulators, is that it will continue to grow in the short and medium term with increasing institutional demand to the original fade», — the document says.
From the standpoint of the Pizza and the Mall, the financial support of bitcoin is a symptom of the bubble, where there is money available for investment, and where there are no effective investment in the real economy.
«Free lending money and easy access to capital and credit shoulders (for large companies) fueled bubble», — the document says. «Aggressive softening the impact of the financial crisis in 2008 through an unprecedented global devaluation of money, which lasts almost ten years, Central banks have led us to an investment environment filled with bubbles».
With regard to specific events that may lead to the destruction of the bubble of bitcoin, the document as the two possible scenarios mentioned the collapse in the stock market or potential prohibition on the possession of bitcoin.
Despite the apparent consistency, the document is full of contradictions. In particular, the ICO as a way of funding, not tied to bitcoin and cryptocurrency in General the classic. Campaign of crowdfunding in the form of ICO can be in the form of sales of virtual token, released on any specialized platform, including non-bloccano cryptocurrencies.
The market size of ICO (the above $ 5 billion) is less than 1% of the total capitalization of cryptocurrencies, and therefore has no significant effect on the overall market. Many supporters of cryptocurrency and I think ICO is a dangerous and unreliable financing scheme most appropriate to the scammers. ICO boom was facilitated by repeated growth of Ethereum, but has no connection with the natural growth of the popularity of bitcoin and other cryptocurrencies and classic, not involved in the process of selling tokens.
With regard to the argument about the «bitcoin bubble», many times repeated with slight variations for several years, they do not honor this institution like Credit Suisse. The market of bitcoin is at least four times inflated and burst is similar to the current «bubbles», but each of them was many times larger than the previous, and each year the popularity and use of bitcoin only continue to grow. At the end of 2017 bitcoin successfully paved the way for regulated futures markets, and its volatility will inevitably decrease every year. However, every few months comes another «scientific» work, in which the «researchers» endlessly repeating the same arguments clogged, not even trying to apply them to the actual current situation. To substantiate these reports can only be that the greatest danger bitcoin is not for investors, but for banks themselves, making them superfluous and easily replaceable link in the new economy.
Bitcoin is already the tenth year, and during that time, recognize that even the researchers themselves, from the «toys for programmers» grew to a «new asset class», which is traded on the international market and is being discussed by the governments of the largest economies and international organizations. Projects on the blockchain embedded in government, corporate and private entities, including such critical sectors as energy, transportation and health care.
All this clearly suggests that the technology works, and bitcoin, for which it was designed, has become one of the many applications of the blockchain. And although the future of cryptocurrency is still hazy, to say that they do not have a real basis means to deny the obvious. And even the most myopic «researchers» have time to recognize that the bubble became a solid glass bead, and investment in bitcoin is more reliable and promising than in the shares of any of the corporations or commodity futures.
And finally, one more thing. The government can not prevent the emergence of bitcoin as a currency. They can only deny. But not even talking about the fact that the effectiveness of this prohibition will not be higher than the efficiency of a ban torrent trackers ban the cryptocurrency will have a direct and eloquent evidence that the state (Fiat) currency is not so much a medium of exchange, as a means of state control over its citizens, the stability of which rests only on mass coercion to its use.