Bitcoin and other Cryptos Must be Considered More Seriously Since Intrinsic Value of Fiat Currencies Is Being Questioned: Report

BNY Mellon (NYSE:BK), an American investment banking services holding company headquartered in New York City, notes that in the current environment, where the “intrinsic value of fiat currencies is increasingly being questioned,” it’s important to take into consideration the value of alternative currencies like Bitcoin (BTC).

BNY Mellon writes in a new report that they think there’s now real demand for Bitcoin and other cryptocurrencies. In its report, the bank clarifies that it’s not attempting to derive a price target or formalize “a valuation mode” for these new forms of assets. However, they intend to look into the different “analogies” and “dissimilarities” that may be applied to Bitcoin and “potentially other areas of cryptos.”

As noted in the report, an accepted definition of a currency is “a store of value and a medium of exchange.” According to BNY Mellon, “by these accounts, Bitcoin fits the description of a nascent currency.”

The report added:

“Some may hypothesize that measuring Bitcoin is as simple as applying traditional currency valuation models. However, many aspects of valuation are a relative exercise. For example, is 20x PE expensive? It depends and is relative to both the growth of EPS and also versus peers. Determining whether the Japanese yen is overvalued hinges on its relative value versus other currencies.” 

The bank’s report further noted that “most mainstream currency valuation models, from Purchasing Power Parity to the Economist’s Big Mac Index, generally revolve around the relative position of the issuing nation.” It added that  “factors such as relative interest rates, imports/exports, reserves and national debt, among many other items, influence the valuation output.”

But the report also points out that Bitcoin and other crypto-assets are “unique as there are no central banks, trade balance, geopolitics, etc. behind the issuer.” It also mentions that “the lack of issuer is by design.” The report adds that “in its most basic essence, many purists argue that Bitcoin and other cryptocurrencies are a true global currency.”

Researchers at BNY Mellon also think that “ultimately, Bitcoin valuation will likely be a combination of several models and be constantly evolving, especially as it gains mainstream acceptance.”

The report also mentioned that the network value to transaction model of Bitcoin and other crypotos is mainly focused on the utility of these digital assets “as a digital transaction currency, and the volume of transactions factors highly into this model.” But the report also notes that “one concern with this framework is that recent data suggests the majority of investors buy Bitcoin as a store of value and holding duration is increasing.”

As stated in the report, this approach is “similar to gold, where the commodity is bought/sold as a store of value and very little is used as medium of exchange.”

The report also points out that there are “many signs that both consumers and merchants have a willingness to transact in Bitcoin and generational changes are likely to provide a tailwind to these efforts.”

The report concludes:

“Valuation is more art than science. Case in point, the largest financial market is the global currency market. Currencies have been utilized in one form or another for centuries. Yet to this day, there are still several competing models for currency valuation, each with its own strengths and flaws. Ultimately, Bitcoin valuation will likely be a combination of several models and be constantly evolving, especially as it gains mainstream acceptance.”

As reported last month, BNY Mellon, a bank with $2.2 trillion in assets under management, announced the creation of a new Digital Assets unit that seeks to accelerate the development of solutions to help clients address growing and evolving needs related to the growth of digital assets, including cryptocurrencies. BNY Mellon is one of the oldest banks in the US with a legacy that dates back to the late 1700s. The bank is simply recognizing the growing demand for digital assets as customers and investors look to leverage the new technology or invest in cryptocurrencies like Bitcoin.

As covered earlier this month, Fireblocks, which aims to bring crypto to financial services firms including big banks, Fintechs, exchanges, and more, raised a $133 million Series C with a strategic investment from BNY Mellon and other prominent investors.

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