Both bitcoin and gold have been popular with investors looking for an alternative to US dollars. Photo: iStock

Bankers have been some of the most vociferous critics of bitcoin over the past decade, but that attitude has been changing recently. The latest institution to warm to Satoshi Nakamoto‘s creation is the Bank of Singapore.

The private institution believes bitcoin and other cryptos could replace traditional safe-haven assets like gold, according to its latest research note.

Mansoor Mohi-uddin, the bank’s chief economist, wrote that the finite supply of bitcoin – there can only be 21 million – was an attractive feature to investors, who are increasingly turning to it to strengthen their portfolios. However, regulatory and reputational challenges remain, The National, a UAE-based newspaper, and Britain’s The Independent report.

“First, investors need trustworthy institutions to be able to hold digital currencies securely. Second, liquidity needs to improve significantly to reduce volatility to manageable levels,” Mr Mohi-uddin said.

“Bitcoin is highly volatile as its rally over the past year from $4,000 to more than $40,000 and then back towards $30,000 shows. Bitcoin is also correlated with stocks and other risk assets rather than trading as a counter-cyclical safe-haven. In a financial crisis, cryptocurrencies are more likely to be dumped by investors during a market meltdown, as occurred at the start of the pandemic in March 2020.”

While bitcoin fell dramatically at the start of the pandemic, it quickly rebounded, emerging as one of the best-performing assets of 2020.

The Bank of Singapore note said bitcoin was not viable as a replacement for traditional fiat currencies like the US dollar because of its notorious volatility and governments’ inclination to protect their monetary sovereignty.

“Governments are very wary of any technology that could potentially displace national currencies,” Mr Mohi-uddin said.