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Bitcoin price is based on 'wishful thinking,' Deutsche Bank strategist says

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Deutsche Bank Macro strategist, Marion Laboure, joins Yahoo Finance to break down the volatility of cryptocurrency and what could be next for the cryptocurrency market as it continues to see ups and downs.

Video Transcript

JULIE HYMAN: There is a note recently that caught our eye from Deutsche Bank that talked about Bitcoin and some of the threats it may face on the regulatory front. Marion Laboure is joining us now. She's a Deutsche Bank macro strategist who wrote that note. And you talk about, you quote Karl Lagerfeld, which of course, caught my eye. Trendy is the last stage before tacky, you said, which basically illustrates the fickle nature of cryptocurrency trading. Do you think that the regulatory concerns are the biggest threat to a continued rally?

MARION LABOURE: Yeah, so actually, the value of Bitcoin fell sharply last week to just above 30K at one point, so it lost more than half since it reached nearly 65K in mid-April. So if we look at the big picture, we are back to prices since two, three months ago. And let me start with your remarks. Overall, what we are seeing, it's clearly a rising trend. So in a year Bitcoin prices has risen by four or five times, so clearly bitcoins and sure not all cryptocurrency, are here to stay. And Bitcoin's market cap of $1 trillion makes it too important to ignore.

So I'm not saying that all crypto projects are serious, because we have seen DeFi100, and some jokes like Dogecoin. And what we are seeing in this market and what I clearly emphasize is its noted volatility. And we saw that there is less than a third of bitcoins that are used for transactional activity related to payments for goods and services. And the rest largely is used as a financial investment.

So liquidity is relatively low if we compare it to other assets and other currencies. So what we expect is probably like Bitcoin to remain volatile with a few additional large franchises or market it could significantly impact the supply and demand equilibrium. So this volatility is fairly normal and we should continue to expect it looking forward.

BRIAN SOZZI: Marion, you write in your research that regulators will quote, "crack down on Bitcoin." What is cracking down on Bitcoin look like?

MARION LABOURE: So yes, currently it's slightly less, but Bitcoin's market cap reached $1 trillion, which makes it definitely too important to ignore. And we also believe that bitcoins and probably a few of our cryptocurrencies are here to stay. So until recently, regulators and authorities have been reluctant to move too fast into the cryptocurrency space, because there has been like a lot of innovation. And this allowed the financial sector to innovate as well. So competition and innovation are usually positively correlated.

What I was saying, is like governments are probably unlikely to relinquish their monetary monopolies. And as bitcoins or any other private cryptocurrencies start to seriously compete with regular currencies and [INAUDIBLE] currencies, government currencies, regulators and policy makers will wake right up. And it's, we are already actually seeing that. If you look at what the Bank of International Settlements, the G7, the G20, they are all keeping a close eye on cryptocurrency. And regulation is definitely coming.

So the later part of this year and early next year, 2022, are going to be a turning point for cryptocurrencies, and this for around the world. Cryptocurrency regulators, they clearly have the topic on their agenda. So just to give you like actual example, in the Europe European Union, the European Commission did a market consultation earlier last year, and they all started MiFID II with a MiFIR, which is expected to take effect by the end of this year or early next year.

In the US, the US government has taken also numerous regulatory actions since early 2019, such as the framework for digital assets. And you may have seen as well that last week, cryptocurrency transfers of more than 10K now needs to be reported to US tax authorities. And we also expect the new Biden administration to establish a collaborative and unified strategy to address this existing comprehensive regulatory framework, and establish new regulations as needed to provide legal certainty. So we should have more and more regulation [INAUDIBLE] as well.

MYLES UDLAND: Marion, I'm curious what kind of feedback you've gotten from clients on this piece. Are people, do they agree, do they disagree, are people wondering why you guys are spending time writing about Bitcoin? What has that feedback been like so far?

MARION LABOURE: Yeah, I think there is a clear consensus that bitcoins, and it's true for bitcoins, but it's true for most of cryptocurrency, it's a very volatile investment. There is also consensus with clients that bitcoins-- and not only bitcoins, but like it's for [INAUDIBLE] and [INAUDIBLE] cryptocurrencies-- that they reach a certain market cap that is probably too high to be ignored.

And I mean, most of them are thinking about cryptocurrency. Sure, clients are moving towards cryptocurrency. A few of them think that it could be a good hedge regarding inflation. And a few of them are thinking as well that maybe in the future we could see bitcoins as the new digital gold. This is what we had in terms of client's response.

JULIE HYMAN: Right. So they're definitely interested and they're hungry for some fundamental analysis what one can do when it comes to cryptocurrencies. Marion, thank you so much for joining us. Marion Laboure is a Deutsche Bank macro strategist talking to us about cryptocurrencies and regulation and liquidity and all of the other issues surrounding it. Appreciate it.