Joe Davis, the head of Vanguard Investment Strategy Group, thinks Bitcoin could fall to zero.
Vanguard managed $5.1 trillion as of the end of January, working for 20 million investors in 170 countries.
Davis wrote a scathing assessment of the cryptocurrency’s future, questioning its value as a currency and as an investment vehicle.
Davis added that cryptocurrencies pose no danger to the stability of global fiat currency infrastructure, the cash underpinning all transactions worldwide.
In fact, Davis believes that central banks will eventually adopt their own versions of blockchain technology and digital currencies, making current coins worthless.
In the piece, Davis argues that Bitcoin has no inherent value as a digital currency because of its unpredictable and unstable valuations.
Like many global central bank chiefs, Davis nevertheless sees a lot of value in the underlying technology of Bitcoin, known as the blockchain.
A blockchain is a digital ledger that allows for the anonymous recording of Bitcoin creation. The technology can and has been adapted to any number of other uses, however, such as verifying the movement of goods and establishing identity.
In the end, blockchain is a public, shared way of recording a series of facts or transactions. Cryptocurrencies just happen to use the system to operate.
“Although cryptocurrencies are built using a blockchain, they are not necessarily tied to the value of blockchain applications that may improve the cost, speed and security of executing transactions or contracts,” Davis wrote.
Barring Davis’s praise of blockchain technology, he remains unimpressed with Bitcoin mania.
The virtual coin topped $20,000 in late 2017. It currently trades at around $7,312.
Davis is often asked about the investment viability of Bitcoin and he says he doesn’t understand its mania effect on people.
“Over the past few months, I’ve gotten this question more than any other,” Davis wrote.
“I’m enthusiastic about the blockchain technology that makes bitcoin possible. As for bitcoin the currency? I see a decent probability that its price goes to zero.”
Path to zero
Davis argues that cryptocurrencies cannot be seen as a legit currency because of its wildly fluctuating valuation.
“Its price volatility undermines its adoption, as fewer vendors will accept a currency whose value can fluctuate so dramatically,” he wrote.
“The prices of newer currencies have been similarly volatile.”
Some fear the power of Bitcoin to overthrow global fiat currency infrastructure — money itself. Davis is not convinced.
In fact, he believes that the existing financial infrastructure overthrow could occur the other way around.
Many central banks and financial institutions today are adopting blockchain technology to innovate around transaction efficiency.
Big banks move trillions of dollars in investments, cash and shares on a daily basis. The cost of that movement is largely borne by the banks, which then pass the cost to depositors.
Japan’s largest bank, Mitsubishi UFJ Financial Group, plans to launch a large-scale trial of its own cryptocurrency sometime in 2019.
Davis thus sees no future value in cryptocurrencies that face potential obsolescence against centralized, well-entrenched competitors.
“Those currencies would be ‘legal tender,’ legally recognized forms of payment for all debts and charges,” wrote Davis.
“If the choice were between bitcoin or a blockchain-based dollar, which would you rather have in your digital wallet?”
The trading value of Bitcoin is down by about 40% since the beginning of 2018.