According to a study released by Deutsche Bank, bitcoin is now the third-largest currency in terms of overall value in circulation, making it too important to ignore. Governments and central banks, according to the bank, understand that cryptocurrencies are here to stay and are expected to begin controlling the industry this year.
“Bitcoins: Will the Tinkerbell Effect Become a Self-Fulfilling Prophecy?” asked Deutsche Bank Research in a study released last week. It’s the third instalment of “The Future of Payments: Series 2.” Research analyst Marion Laboure, Ph.D., the report’s author, wrote:
With a market capitalization of $1 trillion, Bitcoin is much too significant to ignore. Bitcoin prices can continue to rise as long as fund managers and companies continue to enter the market.
At the time of writing this article, the price of bitcoin is currently $54,722.56 and the cryptocurrency’s market value is around $1.07 trillion.
Bitcoin is also discussed as a product, currency, and equity in the paper. Although the study acknowledges that “bitcoin transactions and tradability are still limited,” it claims that the cryptocurrency’s “market cap is among the top ten, both as a currency and as a stock.” The study outlines the following comparisons between bitcoin and fiat currencies:
After the US dollar and the euro, bitcoin is the world’s third-largest currency in terms of overall circulation.
The present value of all currencies in circulation. Deutsche Bank is the source of this knowledge.
“This is mostly due to bitcoin’s recent massive rise in value,” the study continues, noting that “in early 2019, bitcoin represented ‘only’ 3% of US dollars in circulation, but in February 2021 it soared past 40% of US dollars in circulation.” According to Deutsche Bank Study, the Japanese yen is the fourth-largest currency, followed by the Indian rupee.
“Bitcoin’s value will continue to rise and fall depending on what people think it is worth,” Laboure said. “This is also called the Tinkerbell Effect,” she explained, which is “a known economic concept indicating that the more people believe in something, the more likely it is to happen based on Peter Pan’s statement that Tinkerbell exists because children believe she exists.”
In addition, the Deutsche Bank analyst stated:
Understanding that cryptocurrencies are here to stay, central banks and governments are likely to begin monitoring crypto-assets later this year or early next year.
Central banks are “also speeding up research on their own central bank digital currencies (CBDCs) and launching pilots,” according to the Deutsche Bank report.
Laboure then went on to talk about bitcoin’s future. “Bitcoin is here to stay in the short term, and its value will remain volatile,” she said.
In the medium to long term, the analyst claims that “there would likely be little space for using cryptocurrencies as a widespread means of payment due to very strong network effects.” Furthermore, she warned that bitcoin “will have to turn potential into outcomes to maintain its value proposition in the long run,” adding:
Central banks are unlikely to give up their monopolies in the long run. And there would be little space for bitcoin to substitute conventional currencies as long as governments and central banks remain and have the power to control currency.