Cryptocurrencies will survive the rise of central bank-backed digital coins, but their use will likely decline, Deutsche Bank says
Cryptocurrencieswill survive, but their use may be limited by central bank digital currencies, Deutsche Bank said.
- The report says cryptocurrencies will become stronger and more usable in everyday life the longer they exist.
- Once CBDCs are commonplace, their advantages could outweigh those of cryptocurrencies, the report said.
AdvertisementCryptocurrencies aren't going anywhere in the coming years, but their usage will probably decline when central bank digital currencies (CBDCs) are eventually rolled out, according to Deutsche Bank International Private Bank.
Currently, cryptocurrencies like
"The longer cryptocurrencies survive, the more robust and credible they become due to network effects (Metcalfe's law). Once we see some stability in terms of price fluctuations, the use of cryptocurrencies for the exchange of goods and services goods could increase," the report said.
Whether this will become reality depends on the rollout of CBDCs and factors such as regulation, environmental impact, security issues and transaction speed, Deutsche Bank said.
Whilst most major
Deutsche Bank argues the longer central banks take to deploy their own digital currencies, the more scope existing cryptocurrencies will have to establish themselves. As most CBDCs are still at the very early stages of development, this could be a long time coming, but will have a significant impact when their use does become mainstream.
"A widespread introduction of CBDCs accompanied by higher regulation of cryptocurrencies could create a more challenging environment for
Key differences between cryptocurrencies and CBDCs include the levels of centralization, regulation, oversight, encryption and transparency, Deutsche Bank said.
"My belief is that governments and more digitally-aware populations may ultimately prefer to go with
AdvertisementThe report also urged caution against treating cryptocurrencies as an equivalent to gold in terms of diversification and risk management. Deutsche Bank said the high volatility and low liquidity of cryptocurrencies were key concerns.
Despite this, the incorporation of crypto assets into existing investment vehicles like ETFs may attract more retail and institutional funds into the sector as it makes investments easier, the bank said.
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