Attempts to quantify bitcoin’s ‘true’ value have proven notoriously difficult, but for a Morgan Stanley strategist, the digital currency is possibly worth nothing at all.
In a research note to clients, Morgan Stanley analyst James Faucette said bitcoin may be worth zero dollars. At the time of writing, the digital currency was worth roughly $12,700 following another major slump.
Bitcoin’s Valuation Conundrum
The paper, titled “Bitcoin decrypted,” gave compelling reasons why the digital currency was difficult to valuate. In particular, bitcoin cannot be treated like a currency because there is no interest rate tied to it. Its daily volumes also pale in comparison to the $5 trillion-plus global forex market.
Though many have likened bitcoin to gold, it lacks the intrinsic value of precious metals. After all, gold and silver are not just investments, but key inputs in jewelry and electronics. Bitcoin does not appear to have the same use cases.
Faucette argues that, while bitcoin has been marketed as a payment system, a lack of scalability has limited its adoption as a payment vehicle. This certainly explains the growing pressure within the blockchain community to improve the algorithm. Backers of Segwit2x and other hard fork proposals have sought to improve bitcoin’s transaction capacity in hopes of generating greater mainstream adoption of the digital asset.
Until now, bitcoin has attained mainstream appeal as an investment, but less so as a payment mechanism. Of course, there are exceptions to the rule. Japan’s recognition of bitcoin as a legitimate payment method has created more avenues for transacting the digital currency. Additionally, hundreds of thousands of merchants already accept bitcoin as a payment method. That being said, Faucette argues that the top e-Commerce merchants continue to neglect bitcoin.
The numbers certainly don’t lie. In the third quarter of 2017, only three of the top 500 global e-commerce merchants accepted bitcoin as a form of payment. That’s down from five a year earlier.
“If nobody accepts the technology for payment then the value would be 0,” Faucette said.
Growing Asset Class
Morgan Stanley has adopted a more upbeat position on bitcoin than fellow Wall Street banks, with CEO James Gorman arguing that cryptos are “more than just a fad.”
“The concept of anonymous currency is a very interesting concept — interesting for the privacy protections it gives people, interesting because what it says to the central banking system about controlling that,” Gorman said in September.
The bank says investors have already poured $2 billion into cryptocurrency funds this year alone, with 2018 shaping up to be an even bigger year.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
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