Citadel, a prominent wealth and investment manager group in South Africa, in a Q2 report, has criticized Bitcoin as being overhyped and ripe for a crash on the scale of mobile phone company BlackBerry.
The Investment company has warned its clients that Bitcoin should not be viewed as a solid investment as its value fluctuates too widely, there is resistance from governments, and that it can be overtaken by the next big cryptocurrency.
Praise the Blockchain, shun the coin
As with many companies in recent times, there is high praise for the underlying technology that Bitcoin is built on, its Blockchain, but the digital currency spawned from that is still met with skepticism.
Citadel’s Director George Herman described cryptocurrency as:
“nothing more than loyalty points for extravagant computer games with absolutely zero intrinsic value.”
“It is illegal for us to invest our clients’ money in an unregulated, over-hyped loyalty point system,” he adds.
Understanding the enemy
With such a scathing attack on Bitcoin, Citadel has done their research in reaching this position. Their reasoning for the massive expansion of Bitcoin this years is down to three factors.
Firstly, the adoption of Bitcoin as an official medium of payment in Japan, the currency’s potential as an alternative asset to the traditional investment market, and the resolution of the threatened major hard fork thanks to the SegWit2x scaling platform.
However, despite this, Citadel is still far more impressed with the Blockchain technology than the digital tokens stating that Bitcoin and the likes are not sound investments.
Their evaluation of Bitcoin as an alternative currency has been difficult as they believe that its decentralized nature, total global reach without domicile, and the fact that it is untethered to economic fundamentals means that it is incomparable.
This has led to a difficulty in finding Bitcoin’s true value, Citadel portfolio manager Mike van der Westhuizen said in the report. The demand is stemming from speculative traders which in turn prevents short sellers assessing the true value.
The report went on to link the boom in Bitcoin to that of BlackBerry’s between 2006-2008. The mobile phone company saw a growth of 525 percent before its stock took an almighty crash.
The Crash was linked to its fundamentals, strategic positioning and the competitive landscape.
For Citadel, their belief is that these same factors will lead to the fall of Bitcoin.
“We believe that hype and subsequent price appreciation of select cryptocurrencies belies any of the underlying traits that we would look for in a sound investment, and rather feeds on optimism as to the future of cryptocurrencies.”
Citadels warning was also much more directed at Bitcoin, rather than cryptocurrencies as a whole, stating that the technology is sound but it could be improved upon, or another coin could take the mantle Bitcoin currently holds.
“Bitcoin is to cryptocurrencies what the Motorola DynaTAC 8000X (one of the first ever mobile phones) was to mobile phones,” the report said.
“While the price can continue to run, the biggest risk is not missing out but rather in waking up to the realization that Bitcoin isn’t the chosen one. Just ask BlackBerry.”