Bitcoin is still too 'unstable' to become mainstream money, UBS says

Key Points
  • The cryptocurrency needs to overcome price volatility and regulatory roadblocks before it can be considered a mainstream asset class, according to one UBS strategist. 
  • "Bitcoin is still too unstable and limited to become a viable means of payment or a mainstream asset class," UBS strategist Joni Teves says.
  • Teves looked at the price of bitcoin historically and found that 70 percent of big price moves were results of speculative "momentum-driven" interest. 
A man looks at ATM machines for digital currency Bitcoin in Hong Kong.
Anthony Wallace | AFP | Getty Images

The world's largest and most popular cryptocurrency is still a far cry from playing the role of real money, according to global investment bank UBS.

"Bitcoin is still too unstable and limited to become a viable means of payment or a mainstream asset class," UBS strategist Joni Teves wrote in a note to clients Thursday. "Owing to its lack of price stability, bitcoin falls short of criteria that need to be satisfied to be considered money."

Among its biggest roadblocks are recent dramatic price swings and some technological limits, according to UBS.

The cryptocurrency's price has been marked by peaks and valleys this year. It often varies by hundreds of dollars in a single day and has fallen more than 60 percent since nearing a high of almost $20,000 in December. The digital currency was trading near $7,500 as of Thursday and has fallen roughly 50 percent in 2018, according to data from CoinDesk.

Teves looked at the price of bitcoin historically, and found that 70 percent of those price swings were the result of speculative "momentum-driven" interest which makes bitcoin "vulnerable to large moves."

Price volatility has been a non-starter for some investors, but bitcoin has paid off for long-term buyers. Since 2013, bitcoin's annual return has been 216 percent. In comparison, stocks and investment grade bonds have risen 16 percent and 1.6, respectively, according to UBS. On a risk adjusted basis though, bitcoin only modestly beat stocks, Teves found.

Still, she said there is no certainty on whether bitcoin's past performance can be repeated.

Teves also mentioned technical limits, and something known as scalability, size and speed. Changes by developers to address the issue have been "insufficient," she said.

"Bitcoin cannot handle the volume of transactions processed by mechanisms being used in the real world," Teves said.

UBS didn't completely rule out bitcoin's future as a form of payment. Teves outlined several conditions for it to become a "legitimate asset class," including regulatory support with consumer safeguards.

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