Vanguard's chief economist: 'Decent probability' that bitcoin goes to zero

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Vanguard is optimistic about blockchain, but not bitcoin

Add Vanguard to the growing list ( of major Wall Street institutions that are skeptical of bitcoin.

Joe Davis, Vanguard's global chief economist and the head of its investment strategy group, weighed in on the world'slargest digital currency, expressing enthusiasm about bitcoin's underlying technology but extreme bearishness about thecryptocurrency itself.

"I see a decent probability that its price goes to zero," he wrote in a blog post ( While bitcoin has largely trended higher over the past 12 months, recent trading in the notoriously volatilesecurity has been decidedly lower. Bitcoin last traded at $8,208.83, down 0.3% on the day. The digital currency wastrading under $1,000 a year ago, but it has sharply declined from a peak near $20,000 hit in December. The gains haveled to a surge in interest in bitcoin and other digital currencies; Davis wrote that he's been asked about bitcoin morethan any other topic over the past few months.

Check bitcoin and cryptocurrency prices, performance and market capitalization, in one dashboard (

Davis gave a mixed verdict on whether bitcoin or other cryptocurrencies should even qualify as currencies, noting thatwhile they can act as a unit of account, they functioned poorly as stores of value.

Bitcoin's "price volatility undermines its adoption, as fewer vendors will accept a currency whose value can fluctuateso dramatically," he wrote, adding that he would only give "a qualified yes" on whether bitcoin could act as a medium ofexchange. He noted that while some vendors accepted cryptocurrencies as payment, only a few did, "and recent volatilitywill only discourage increased adoption."

The comments echoed a recent report ( by Morgan Stanley, which argued that bitcoin was a long way from replacing Visa (V) or Mastercard (MA)as a payment system. The investment bank noted that credit cards were far more widely accepted than cryptos, and thatthe networks they use could process thousands of transactions a second. Currently, bitcoin takes several minutes toclear and settle a single transaction, and the fees are higher.

"Even if cryptocurrencies qualify for niche purposes [as currencies], their prospects seem dubious," Davis wrote. "Thegreatest threat is central banks, which have begun to research blockchain-based currencies and impose regulations onexchanges."

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Vanguard's economist also dismissed the value of cryptocurrencies as an investment, calling this use case "weak."

"Unlike stocks and bonds, currencies generate no cash flows such as interest payments or dividends that can explaintheir prices," he wrote, adding that while national currencies derive their prices based on the economic activity oftheir underlying country or region, crypto prices "are generally not based on economic fundamentals."

"To date, their prices have depended more on speculation about their eventual adoption and use. The speculationcreates volatility that, ironically, undermines their value as a currency. With no cash flows and extreme volatility,the investment case for bitcoin is hardly compelling."

Counterpoint:Winklevoss: If you can't see bitcoin at $320,000, you just lack imagination (

Read more:Bitcoin is acting unusually like the stock market (

Like other analysts, Davis distinguished between bitcoin and blockchain, the decentralized ledger technology thatcryptocurrencies run on. Many bitcoin skeptics see great potential in blockchain, even while they remain bearish oncryptos themselves.

In October, UBS wrote that blockchain ( "is likely to have a significant impact in industries ranging from finance to manufacturing,health care, and utilities," and said it was "akin to investing in the internet in the mid-nineties." The investmentbank speculated that blockchain could add as much as $300 to $400 billion of annual economic value globally by 2027.Separately, HSBC called blockchain--along with the parallel trend of "cashlessness"--one of its biggest themes for 2018(

Read: Why a dot-com-style collapse in bitcoin won't kill blockchain (

Blockchain has already started to be adopted by a variety of industries and companies, including Vanguard, which saidit would use the technology to share data between index providers and market participants, believing this could resultin its index funds more efficiently and accurately tracking their benchmarks.

"Although cryptocurrencies are built using a blockchain, they are not necessarily tied to the value of blockchainapplications that may improve the cost, speed, and security of executing transactions or contracts," Davis wrote. "Bitcoin is an investment in blockchain in the same way that was an investment in the internet."

Don't miss:This is what Vanguard's chief economist says is the most important economic trend of our lives (

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