Why a Wall Street strategist is a bitcoin skeptic

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Bitcoin (BTC-USD) could hold above $ 46,000 on Monday, but a prominent Wall Street strategist is still somewhat skeptical of the cryptocurrency.

In a recent Yahoo Finance Plus webinar, Liz Ann Sonders, chief investment strategist at Charles Schwab, explained her main fears about bitcoin, being careful to point out that she doesn’t completely reject cryptocurrency.

“I’m an admitted skeptic to some extent. I’m not on either end of the spectrum, which means I’m a skeptic, but I’m not. [saying] this is complete nonsense … I have yet to get a very convincing answer to the question I ask all the time whether these are crypto experts or crypto fans, so to speak, what’s the problem that this solves? And I get a myriad of responses, but none at least resonate significantly with me, ”she said.

Sonders lists common responses from bitcoin enthusiasts, starting with a distrust of the global fiat currency regime. Sonders explains that she trusts the custodians of the existing financial system more than cryptocurrency miners.

“I continue to trust the entire American financial system, the banking system, all its protections as well as the power of the central bank, the Federal Reserve to somehow control fiat money which is also the norm. global monetary and global reserve currency versus, say, bitcoin miners, ”she said.

To people who love bitcoin as an inflation hedge, Sonders points out that there have been no major price inflation spikes in bitcoin’s history until very recently. “Bitcoin has been around since 2009, and the only surge in inflation we’ve had since that time was during a three month period in which bitcoin was cut in half. So you kind of lose that argument. . “

Risk not appreciated

Sonders also revealed a deeper concern about bitcoin’s positioning, namely concentration, an issue that recently rocked financial markets. At least twice this year, supposedly savvy institutional investors have racked up undisclosed whale-sized positions that suddenly deteriorated, wiping out entire hedge funds and injuring brokers to the tune of billions of dollars. Sonders details these incidents and links them to bitcoin.

The story continues

“Melvin Capital’s implosion with GameStop was a short-term focus issue. The implosion of Archegos and stocks like CBS Viacom was a focus issue in this case on the long side. I’ve seen the top 2% of bitcoin holders own between 90% and 95% of bitcoin. And then there’s leverage associated with a lot of that, ”she said.

Sonders explains that this is a vastly undervalued risk when it comes to investing in bitcoin.

“I think that thread of leverage and focus can arguably work its way through a lot of these areas where you’ve seen a tremendous amount of speculation,” Sonders said. “And I’m not suggesting that this is a house of cards at one point, but I just don’t think there is still enough connection between these points of focus and leverage, and [that] could be a risk factor that is underestimated at the moment. ”

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Jared Blikre is a news anchor and market journalist on Yahoo Finance Live. Follow him @SPYJared

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