Even though bitcoin has just hit another milestone, reaching a staggering $6,900 record in the market, many remain skeptic into its stability. Some believe this is just a fad, while others, like Allianz’s Chief Economic Advisor argues that it’s not what we all think it is.
Bitcoin, one of the hundreds of cryptocurrencies in the world, has been the pioneer for this technology. However, Mohamed El-Erian notes that bitcoin and other cryptocurrencies are not currencies, but commodities, according to CNBC.
During the 2017 Barclays Asia Forum, El-Erian told CNBC that the cryptocurrency doesn’t have the stability that currencies should have.
“A currency serves as a predictable store of value, and serves as a medium of exchange that’s pretty stable in value as well—bitcoins aren’t that there yet, they’re still trying to find stability so it’s more of a commodity than it’s a currency.”
Last month, El-Erian even said that bitcoin’s $4,000 value was simply overreaching and that the actual value should just be half. However, bitcoin’s continuous stride of over 500 percent increase this year proves him wrong.
What El-Erian would like to highlight is bitcoin’s ability to really be a form of exchange. The stability is somewhat debatable at the moment, but the Allianz officer is keen to not make bitcoin a big deal.
Since bitcoin is decentralized, this is what makes it different from traditional currencies that are owned by the government. However, just like gold, which is one of the world’s most expensive commodity, bitcoin can also be used as a token of exchange. There is one thing that differentiates traditional commodities from bitcoin and that is it’s not made of any raw material.
Even though bitcoin can be bought or sold, it still does not resonate any similarities to traditional commodities like oil, coffee, sugar, and the like.
There is still a wide disparity on bitcoin. Japan has recognized it as a currency, while China has banned bitcoin trading in the country. Even JPMorgan Chase CEO Jamie Dimon called it a “fraud.”
El-Erian still cautions people buying into bitcoin saying there is still no assurance institutions and central banks would be buying into the bitcoin trend. He does not believe bitcoin can maintain this trend in the long run.
“My major concern over the long term is: Is the assumption in the pricing about adoption consistent with reality? That’s the issue that investors should ask if they’re holding bitcoins for a couple of months.”
[Featured Image by Andrew Burton/Getty Images]