The last thing I want to be seen as is a grumpy old guy who can’t get the new age of bitcoin and cryptocurrencies. But the more I read the analysis about bitcoin from the smartest guys on the planet, the more I think it’s probably all ‘cryptocrap’!
Don’t get me wrong, I know the blockchain technology that underpins bitcoin and other cryptocurrencies is revolutionary. It will be applied to many innovative ideas in the future. However, its application to currency will eventually be trumped by central banks and worried politicians, who haven’t had yet the guts to blow the whistle on this new age ‘currency.’
I used single inverted commas because bitcoin and its imitators are not real currencies but are ‘wannabe’ mediums of exchange, which one day will be forced to become regulated or be banned.
One of the earliest cryptocurrency deniers was the boss of JPMorgan, Jamie Dimon, who I reckon would’ve taken advice before he gave bitcoin the ‘kiss of death’. In 2017 he called it a “fraud” but did backpedal and admit that the blockchain technology was a winner.
After backing away from his fraud views, he did get it right when he told CNBC that: “The bitcoin was always to me what the governments are going to feel about bitcoin when it gets really big. And I just have a different opinion than other people."
When bitcoin’s price went to $18,000 and my radio listeners were asking if they should jump on board, I’d say: “I wouldn’t, because I think the price has been driven by irrational speculation. That’s not to say it won’t survive, though I admit I don’t fully understand the concept.”
As an economist, I always thought that central banks would have to regulate it like other currencies, and that’s when its appeal would fall and with it, its price!
I knew regulation or even banning bitcoin was probable after watching the latest season of Netflix’s Billions, which has been conceived by the host of Squawk Box on CNBC — Andrew Ross Sorkin — who also wrote the book Too Big to Fail.
In one scene in this TV drama, the villain/hero of the series talks about a shady investment deal where the proceeds are paid to a cryptocurrency account.
That’s when the penny dropped that regulators of the stock exchanges of the world (the monetary authorities, the Treasuries and the tax offices) would be worried if these secret currency accounts grow like topsy.
The game eventually will be up the faster its popularity grows. It doesn’t mean they fail or disappear but they will become less speculative and less attractive.
And as I said earlier, some of the smartest old guys in the world refuse to jump on board the crypto-train.
One such smart guy is legendary economist, Joseph Stiglitz. Joe is a Nobel prize-winning economist and isn’t easily tagged as a dummy, given his body of work in his 75 years of living and thinking.
He thinks the fact that criminals love the crypto-world kills off its potential to be a real currency.
“You cannot have a means of payment that is based on secrecy when you’re trying to create a transparent banking system,” Stiglitz, told the Financial News. "If you open up a hole like bitcoin, then all the nefarious activity will go through that hole, and no government can allow that.”
Joe says regulation will turn criminals off cryptocurrencies and a lot of demand will disappear, driving down the price.
The original idea-creators of the prototype of Facebook, Tyler and Cameron Winklevoss, who are big bitcoin investors, think grumpy old blokes simply don’t understand cryptocurrencies. But a matter of faith and massive, worldwide regulation could prove these Olympic rowing twins wrong.
Three wise men, albeit old ones again, namely Warren Buffett, the world’s greatest investor, Charlie Munger, who Buffett says is smarter than him and a ‘plodder’ in the world of thinking — Bill Gates — are all crypto-deniers.
In a great three-way interview on CNBC, these guys clobbered bitcoin. “Bitcoin is one of the crazier speculative things," Gates said. “I would short it if there was a way to do it.”
Munger, whose a measured man, ripped into bitcoin calling it “worthless, artificial gold!” Furthermore he said “the fact that it is clever computer science doesn’t mean it should be widely used and respectable people should encourage other people to speculate in it.
He used an Oscar Wilde view on fox hunting to describe bitcoin as “the pursuit of the uneatable by the unspeakable.’
Buffett thinks bitcoin believers get too personal when others like him criticise the would-be currency.
He says when the market sells off say Apple, he buys more because he thinks he knows what the company is worth, as he can value the asset. If his value is more than what the stock market is paying, then “I buy more.”
However, when the bitcoin price falls, it’s hard to work out what its price should be because the pricing is pure speculation.
It’s effectively gambling. Like a lot of illegal gambling that’s now being tolerated, officialdom will close it down eventually, or I suspect will regulate it. And that’s when the price of bitcoins and others will stop rising and could easily plummet.
When people ask me about companies or other assets that I don’t fully understand, I quote Buffett and other investment gurus, who basically are always advising us that if you don’t understand it, don’t invest in it.
But in a spirit of objectivity, there are alternative views and here’s one from FX Empire: “Bitcoin (BTC) is on its way to world dominion, and any currency that stands in its way will experience demonetization or Hyperbitcoinization. Those are the sentiments held by leading cryptocurrency philosopher, Daniel Krawisz, who believes the cryptocurrency will be worth $100,000,000 by 2030.”