Bitcoin prices are driven by little more than fund flows, big-name buyers and miner rewards cuts, a Bank of America research report argued Wednesday, adding that CO2 emissions tied to the world's biggest crypocurrency are equal to that of Greece.
In a devastating report entitled "Bitcoin's Dirty Little Secrets", analysts said there no good reasons to own bitcoin "unless you see prices going up". Those gains, BofA said, were largely driven by institutional buyers announcing big purchases, such as Tesla (TSLA) - Get Tesla Inc Report, ARK Innovation ETF (ARKK) - Get ARK Innovation ETF Report, Square (SQ) - Get Block Inc Class A Report and Paypal (PYPL) - Get PayPal Holdings, Inc. Report, alongside flows into the Grayscale Bitcoin Trust ETF (GBTC) - Get Grayscale Bitcoin Trust Report.
That can pump prices quickly, BoFA argues, with just $93 million of net inflows triggering a 1% price increase, a level that requires around $1.86 billon for a corresponding move in gold.
"Bitcoin has also become correlated to risk assets, it is not tied to inflation, and remains exceptionally volatile, making it impractical as a store of wealth or payments mechanism," BofA said. "As such, the main portfolio argument for holding Bitcoin is not diversification, stable returns, or inflation protection, but rather sheer price appreciation, a factor that depends on Bitcoin demand outpacing supply."
Bitcoin prices were last seen 1% lower on the session at $55,107 each, down 10.4% from the all-time high it reached over the weekend but still up more nearly 90% since the start of the year.
The Grayscale Bitcoin Trust ETF was marked 1.6% lower at $49.08 each, trimming its year-to-date gain to around 40%.
BofA also challenged the concept of bitcoin ESG (environmental, social and governance) investment portfolios, noting that the CO2 emissions required to "mine" each transaction are at similar levels to that of Greece, a top fifty global economy, at around 60 tons.
"Plus a $1 billion fresh inflow into Bitcoin may cause CO2 to rise by the equivalent of 1.2mn ICE cars," BofA noted. "As hash power today is mostly in coal-fired Xinjiang, a link between prices, energy demand & CO2 means Bitcoin is tied to Chinese coal. Should prices rise to $1 million, Bitcoin may turn into the world's 5th largest emitter, surpassing Japan."
The heavy environmental cost of bitcoin's complicated settlement procedure is also a factor in its slow transaction processing speed, the paper noted, with just 14,000 transactions per hour. Visa V, by contrast, processes more than 236 million each hour.
Bitcoin is also heavily concentrated, with 95% of the total mined coins controlled by the top 2.4% of addresses with the largest balances. That compares to Federal Reserve data showing the top 1% of Americans controlling around 30.4% of the nation's household wealth.
"In our view, the fact that such a small percentage of Bitcoin accounts hold most of the BTC in circulation makes this instrument impractical as a payments mechanism or even as an investment vehicle. It can also create social and governance issues," BofA said.