Deutsche Bank paper: cryptocurrencies and blockchains – their importance in the future

As Bitcoin smashes through the 15,000 US dollar mark, Deutsche Bank Wealth Management examines the risks of investing in so-called cryptocurrencies and whether they could replace traditional money.

In the latest CIO Insights Reflections, the Chief Investment Office argues that cryptocurrencies remain a risky investment, given that recent price rises have been due to speculation as well as imbalances between supply and demand. Greater regulation and security may be necessary to establish cryptocurrencies as a viable asset class in future.

If cryptocurrencies are to replace money, then they have to fulfil money’s three core functions: as medium of exchange, a measure of value and a store of value. To do this, cryptocurrencies must be more trusted. Problems here include high volatility and possible price manipulation as well as data loss or data theft.

With financial institutions around the world already moving beyond the proof-of-concept phase to full blockchain implementations, Deutsche Bank is positive about what it calls „one of the most innovative developments in recent years”.

The bank says that blockchain’s disruptive potential gives it the ability to radically change the business models of financial services firms, particularly in the areas of stock markets and trading.

Citing a PwC study, the report notes that 63% of managers from German banks expect a change in their business model in the next 10 years because of blockchain technologies, with 29% expecting associated financial advantages.

Deutsche Bank says that it expects to see the first full DLT implementations at banks between 2020 and 2022, and suggests that by 2027 around 10% of worldwide GDP could be regulated by the blockchain.

For further details on Bitcoin and the underlying blockchain technology it relies on, read the CIO Insights Reflections: cryptocurrencies and blockchains – their importance to the future.