US Bank Reveals "Dirty Little Secrets of Bitcoin": Bitcoin Only Driven by Speculation, DeFi More Disruptive than Bitcoin

According to a report by Bloomberg, on March 17, the Bank of America (BofA) released a global research report titled "Bitcoin's Dirty Little Secrets," which claims that apart from speculative demand driving up the price, there are hardly any compelling reasons to hold Bitcoin and suggests that DeFi may be more disruptive than Bitcoin.

Bitcoin Only Has Speculative Demand

In a report, U.S. Bank strategists Francisco Blanch and Savita Subramanian raised several doubts about Bitcoin, including concerns about concentrated chips, volatile prices, high correlation with stocks, commodities, and other assets, poor ESG scores, and the threat of CBDCs.

Furthermore, the analysts emphasized in the report that "Bitcoin price is extremely sensitive to inflows of U.S. dollars." The analysis found that it would take at least $2 billion in inflows to raise the price of gold by one percentage point, and over $22.5 billion to have the same price impact on U.S. Treasuries over 20 years. As for Bitcoin, the report states:

"We estimate that a net inflow of just $93 million in Bitcoin could lead to a 1% price increase."

Billions of dollars in flow do not significantly impact the prices of gold and Treasuries, indicating the larger and more stable scale of the U.S. Treasury market and global gold market. Additionally, the U.S. Bank analysts pointed out that since the top 2.4% of Bitcoin addresses hold about 95% of Bitcoin, considering Bitcoin as a means of payment or investment tool is quite unrealistic.

"The primary purpose of allocating Bitcoin in a portfolio is not asset diversification, stable returns, or inflation hedging, but purely price appreciation, which depends on demand surpassing supply."

Regarding the significant rise of Bitcoin since 2020, the U.S. Bank analysts stated that the main reasons were "appropriate capital inflows" and "reduced market liquidity." The report pointed out that since the outbreak of the pandemic, Bitcoin whales have not sold Bitcoin on a large scale, even transferring Bitcoin out of exchanges, significantly reducing the circulating supply of Bitcoin in the market, coupled with speculative sentiment and institutional buying, thus accelerating the upward trajectory and volatility of Bitcoin.

DeFi May Be More Disruptive Than Bitcoin

However, despite the U.S. Bank analysts' skepticism about the current value basis of Bitcoin, they are very interested in the development of decentralized finance (DeFi), even stating in the report that "DeFi may be more disruptive than Bitcoin." The bank sees DeFi as a fundamental breakthrough in mainstream capital markets, with the rapid growth of its automated settlement and lending platforms, which may ultimately challenge banks, Wall Street firms, and insurance companies, but compared to mainstream finance, DeFi's current scale is only about $35 billion, indicating there is still a long way to go.

Furthermore, the report also points out that credit creation is one of the key driving forces of modern finance. However, DeFi has not made progress in this regard so far, which may become a key and potential development aspect for DeFi in the future.