The Chief Economic Advisor of Allianz has declared Bitcoin to be a commodity, rather than a currency. For him, the lack of assured value prohibits it from being considered alongside the likes of the euro, dollar, or pound. However, his language suggests that this may not always be the case. Speaking to CNBC during the Barclays Asia Forum in Singapore Thursday, Mohamed El-Erian said:
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 there yet, they’re still trying to find stability so it’s more of a commodity than it’s a currency.
Just last month, the Allianz Chief Advisor stated that he felt Bitcoin was overvalued at $4000. Interestingly though, unlike many of his peers, El-Erian does not consider the cryptocurrency to be worthless. Rather, he thinks that the current pricing assumes a widespread and almost total adoption which requires government acceptance, something which is anything but a given.
Since his previous comments, the price of Bitcoin has soared to potentially premature $7,000. This seems largely fuelled by expectation of institutional cash flowing into the market at the year’s end via the CME BTC future’s trading platform announced this week.
However, based on what El-Erian is saying, it seems more likely that Bitcoin is hugely undervalued if we assume a wider market presumption of absolute and government sanctioned adoption. For example, if the digital currency-cum-commodity was accepted as a global store of value in the same way gold has been, and just a tenth of gold’s market cap flooded into Bitcoin, we’d be looking at a price per BTC of over $35,000. Given the current price hovering around $7,000, it hardly seems as if the market are taking widespread and global adoption as verbatim.
Despite his somewhat warped sense of valuation, El-Erian’s opinion does make for light reading after what some of the word of high finance have espoused in recent weeks. He admits the price has swelled into overvalued territory but neglects to use the language of many of his nay-saying peers. Rather than paint the digital currency as a “fraud” or “bubble” as some big money types have, he correctly understands that greater maturity in the market needs be achieved before it can perform successfully perform as a currency.
Despite his measured response to cryptocurrency, for now El-Erian remains in the camp of those who are “underestimating” Bitcoin’s “great potential” – at least according to the likes of billionaire investor Peter Thiel.