Deutsche Bank says Bitcoin is now “too important to be ignored” as the main cryptocurrency is now the third largest currency in circulation (behind only the US dollar and the euro). Bitcoin now represents more than 40 percent of all greenbacks due to the rapid appreciation.
In a new report, an analyst at Deutsche Bank and French economist Marion Laboure writes that Bitcoin can no longer be ignored after its market capitalization exceeded $ 1 trillion:
She suggests that Bitcoin’s huge market capitalization is justified by the Tinkerbell Effect. Named after a fairy of Peter Pan, the term is used by economists to explain the power of belief: something only has value because people believe it has value, just as children believe in Santa Claus.
Bitcoin liquidity problem
Laboure expects Bitcoin to remain “ultra-volatile” due to its low liquidity. The daily trading volume of the cryptocurrency is just a drop in the bucket compared to almost all other commodities, including silver and gasoline. Bitcoin’s daily volume is only 1.9 percent of the gold.
The main cryptocurrency is now the third-largest currency in circulation (behind only the US dollar and the euro). Bitcoin now represents more than 40 percent of all greenbacks due to its rapid appreciation.
However, Bitcoin’s liquidity is on par with a Thai baht. The daily transaction volume of the cryptocurrency is only 0.009 percent of the US dollar.
Little space for competition
Future generations will likely ensure that Bitcoin is here to stay. According to a Deutsche Bank survey, more than 30 percent of millennials in the U.S., Germany, China, the United Kingdom, and other world leaders believe that cryptocurrencies will eventually replace cash and debit cards.
Although Deutsche Bank suggests that Bitcoin may become “an important means of payment” in the future due to its strong network effects, it also notes that it may face government-issued cryptocurrencies and private cryptocurrencies, such as stablecoin Diem (yet to be launched) from Facebook.
However, the existence of central banks means that Bitcoin is unlikely to replace fiat currencies anytime soon: