The European Union’s largest and most influential bank believes that cryptocurrency investments are probably worthless and warns its investors to steer clear.
Deutsche Bank’s wealth management division strongly advises against investing in cryptocurrencies, ICOs and tokens, said Markus Mueller, its global head of investment. A white paper produced by the bank cites extreme volatility, price manipulation by a small group of investors, and theft as key reasons.
“We do not recommend cryptocurrencies,” Mueller told Bloomberg News. “It’s only for investors who invest speculatively. There is a realistic risk of total loss.”
The German bank, meanwhile, recently posted its third consecutive year of losses.
Mueller is not alone. Bank of Spain Governor Luis Maria Linde said that cryptocurrencies are an asset that carries enormous risks. Austria’s Financial Planners Association called Bitcoin investments a “casino visit.”
And almost all the economists at the recent World Economic Forum in Davos, Switzerland agreed that blockchain technology itself has risks that far outweigh any benefits not only to individual investors but to society at large.
In order to establish cryptocurrencies as a valid asset class there will need to be more regulation, security and transparency, according to Mueller.
“Important issues such as liability and documentation are unclear,” he said. “We are still at the very beginning of the mass adaptation and it’s too early to recommend these vehicles as anything other than speculation or experiments.”
The price of Bitcoin had fluctuated sharply in recent weeks after reaching all time highs during a six-month bull run.
Crashes of more than 20% in a single day have occurred and even flash crashes of 25% in minutes.
There are valid concerns about possibly tough crackdowns by regulators in Asia. Even experienced options traders have seen 90% losses in minutes while doing everything possible to mitigate risks.
Mueller and other economists want more regulation. Companies that issue cryptocurrencies should work together with regulators, he said.
“When security and trust are created, cryptocurrencies can be assessed like established asset classes. It is possible that the governance required will exist in five to 10 years from now,” he said.
It seems most establishment economists don’t understand that what crypto enthusiasts want is freedom from regulation, surveillance and centralization as much as they might want massive speculative gains. Simply shoe-horning cryptos and blockchains into the existing financial system won’t work.
Strangely enough, Mueller is bullish on blockchain overall.
“Cryptocurrencies make transactions even easier and more cost-effective. There is the potential to revolutionize some industries from the ground up. It is a technology with probably the most disruptive character for the finance sector and the public since the invention of the Internet,” he said.
Whether regulators will strangle that innovation or embrace the disruption, only time will tell.