On Thursday (29 November 2018), Paul Donovan, the Chief Global Economist at UBS Wealth Management, gave an interview in which he explained why he had written a blog post titled "I come to bury bitcoin, not to praise it."
In a post for the UBC Global Wealth Management (GWM) Blog that was published on 26 November 2018, Donovan had made quite a few negative comments about Bitcoin:
- "The cryptocurrency bubble may be in its death throes."
- "Economists said from the start that Bitcoin and the like would never be currencies. They never will be currencies. Their designers are brilliant at maths. Their designers appear to know nothing about economics."
- The evil of the Bitcoin bubble lives on. The bubble took money from a large number of bubble buyers. That money was given to a small number of bubble sellers."
Two days after launching a scathing attack on Bitcoin, the Oxford-educated British economist tried to defend his views in an interview on CNBC's "Fast Money" show, which is hosted by CNBC anchor Melissa Lee and the Fast Money traders.
Lee started by asking Donovan if he had been waiting for some time to release this note at a point in time when it seems like that the "bubble" has popped so that he could "bury Bitcoin". Donovan answered:
"To be perfectly honest, I think anyone with a high school education in economics would be a Bitcoin skpetic right from the start. These things were never going to be currencies. They are not going to be currencies at any point in the future. They are fatally flawed, and as a result, from the start of the hype in late last year, it was fairly obvious that this was going to end badly, unfortunately, for some of the people who weren't protected by any kind of regulation and got sucked into the process."
Lee then asked Donovan if he was in effect calling all those investment bankers who have moved into the crypto space stupid since they couldn't see that "this thing was a false narrative from the start". Donovan said:
"Well, the problem with any bubble is that it tends to come about when there is something innovative, something new in terms of technology, and it allows that dread phrase 'this time, it's different' to be uttered. And, of course, that's exactly what we had with the cryptocurrencies. There were a lot of people who perhaps didn't fully comprehend what was fully going on with quantitative policy and thought that printing money would create hyperinflation and the fact that printing money doesn't create inflation at all — it's spending too much money that's the problem — and so we had a lot of confusion over this and concerns until you have this hype coming out. Now, the underlying technology of blockchain, the distributed ledger system, that's different. There's an economic preposition there. Again, there's a certain amount of hype around it, but to go from that to Bitcoin is going to replace the dollar is quite a leap."
Lee next asked Donovan if he thought there were no use cases for Bitcoin; Donovan replied:
"Well, I think, if you are looking at a situation where government ceases to exist to all intents and purposes, that does help remove one of the main obstacles, which is you can't pay taxes in Bitcoin. Some people claim that you can at various locations, but you can't. You pay it in the currency of the government, and they may offer you a deal where you can convert your bitcoin at a very disadvantageous exchange rate. So, if you don't have a government, then society gets a bit more anarchic, and in that situation something like cryptocurrency still comes through, but the main problem with these things, the absolute fundamental flaw, is that they're never going to be a store of value. Every economist knows a store of value is about balancing supply and demand, and with cryptocurrencies you cannot control the supply in response to a drop in demand."
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