The bitcoin bubble could be “destructive” in the long term if more people keep pumping money into the cryptocurrency, UBS analyst Paul Donovan told CNBC on Tuesday.
UBS has previously called bitcoin a “speculative bubble.” And Donovan, who is the wealth management global chief economist at the investment bank, has compared the cryptocurrency’s rise to the 17th century tulip craze in the Netherlands that saw the price of the flower skyrocket and crash.
Donovan explained that the rising investment in cryptocurrencies from retail investors could have damaging consequences.
“I dislike bubbles because bubbles sucker in large numbers of people and take their money and give it to a small number of people. And that’s very destructive in the long term. And I think this is one of the problems that we’ve got,” Donovan told CNBC in a TV interview.
“We are now having to start to think about what’s going to be the economic consequence when this bubble bursts. And you’ve got a transfer of wealth, you’ve got a concentration of wealth, you’ve got a negative wealth effect — it potentially is disruptive.”
The economist explained that so far there are a small number of people involved in cryptocurrency trading so if the bubble does burst, the damage is “spread quite thinly.” But if the rising interest in cryptocurrencies continues, then the risk will increase too, Donovan said.
Regulators are also beginning to warn on the dangers of cryptocurrencies and the initial coin offering (ICO), a way for a start-up to raise money by issuing new digital coins.
