The private banking arm of OCBC Bank, the Bank of Singapore, has said that cryptocurrencies could partially replace gold as a store of value, but they are unlikely to replace fiat currencies. According to the research study issued by the bank, the cryptocurrency must overcome obstacles such as high volatility, regulatory acceptability, and reputational risks to achieve this. 

The study stated: “Cryptocurrencies may partially displace gold by offering an electronic, rather than physical, store of value. However, important hurdles such as trust, volatility, regulatory acceptance and reputational risks still need to be addressed.”

Once those hurdles are overcome, the cryptocurrency could also act as a potential safe-haven asset to diversify an investment portfolio.

The bank’s chief economist, Mansoor Mohi-uddin, said: “First, investors need trustworthy institutions that can hold digital currencies safely. Second, liquidity needs to be greatly improved to reduce volatility to a manageable level.”

According to the Bank of Singapore, increasing the participation of institutional investors with long-term prospects, such as asset management companies that have a longer-term vision than retail investors or hedge funds, may help increase liquidity, reduce volatility and lead to the price being driven more by fundamental factors than speculation.

On the other hand, Mohi-uddin does not think that cryptocurrencies will replace fiat currencies, despite the fact that he considers them an inefficient unit of exchange. In his opinion, governments will hinder mass adoption. “Governments are very wary of any technology that could potentially crowd out national currencies,” he said. “This will reduce the ability of politicians to print money during economic crises.”

Mohi-uddin also expressed optimism about the appointment of the head of the US Securities and Exchange Commission Gary Gensler. He believes that this will increase the chances of launching a Bitcoin ETF. “The industry will receive a trustworthy, reliable investment instrument,” he said. “It will expand the number of investors, improve liquidity, reduce volatility and help cope with reputational risks.”