Deutsche Bank: Bitcoin is More like ‘Digital Diamonds’ than Digital Gold
Bitcoin is more like diamonds, which highly rely on marketing, rather than gold, a safe haven asset, according to analysis from Deutsche Bank. The report said that with the flagship cryptocurrency posting losses of more than 50% year-to-date, the case for Bitcoin as digital gold has fallen apart.
Is Bitcoin Still Considered Digital Gold?
Crypto pundits and Bitcoin evangelists sometimes refer to the leading cryptocurrency as digital gold, and for good reason. Historically, Bitcoin has been an outperformer in the long run despite experiencing wild fluctuations in the short term.
However, so far this year, Bitcoin in line with other risk assets has performed poorly amid soaring inflation and mounting geopolitical uncertainty. And the Fed’s aggressive approach to taming inflation has further acted as a drag on the leading cryptocurrency.
At the time of writing, Bitcoin is below the key psychological benchmark of $20,000, trading around $19,000, down by more than 4% over the past 24 hours. The flagship cryptocurrency is also down by 58.8% year-to-date, underperforming gold (which is down merely 0.79% YTD) by a wide margin.
All of this can suggest that Bitcoin has failed as a safe haven or digital gold. Noting this, Deutsche Bank analysts Marion Laboure and Galina Pozdnyakova have made the case for Bitcoin as “digital diamond.” The duo argued that Bitcoin also relies on marketing similar to diamonds, a highly marketed asset.
They compared Bitcoin to De Beers, the world’s leading diamond company that managed to revolutionize the diamond industry with its iconic ad campaign in the late 1950s. They said:
“By marketing an idea rather than a product, they built a solid foundation for the $72 billion-a-year diamond industry, which they have dominated for the last eighty years. What’s true for diamonds, is true for many goods and services, including Bitcoins.”
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Bitcoin to Finish the Year at $28,000
The Deutsche Bank analysts predicted that Bitcoin, which has been increasingly correlated to benchmarks like the tech-heavy Nasdaq 100 and the S&P 500, could recover to $28,000 by the end of the year. That is because they expect the S&P to recover to January levels by year-end, and Bitcoin would probably follow the index.
Notably, JPMorgan strategists also anticipate the current phase of deleveraging in cryptocurrencies to finish soon. They said it is not surprising that some leverage crypto firms are failing after the recent market crash, adding that the liquidity crunch at hedge fund Three Arrows Capital “is a manifestation of this deleveraging process.” They said:
“The current deleveraging cycle may not be very protracted [given] the fact that crypto entities with the stronger balance sheets are currently stepping in to help contain contagion [and that venture-capital funding], an important source of capital for the crypto ecosystem, continued at a healthy pace in May and June.”
The JPMorgan strategists said their net leverage metric, an indicator that assesses the borrowing capacity, suggests that “deleveraging is already well advanced,” meaning that the worst is behind crypto.
What is your year-end Bitcoin price target? Let us know in the comments below.