Crypto has always left me cold. I am not in the least surprised at the recent bust in Bitcoin, which has lost more than half its value since its October peak.
Four years ago it was hit by bankruptcies and scandals, including the collapse of the FTX exchange, whose founder Sam Bankman-Fried is now serving a lengthy prison term for financial fraud.
This time around, critics — including me — are wondering whether Bitcoin will be consigned permanently to the deep freeze.
The cryptocurrency sank at one point on Friday to just over $60,000, in its worst fall since the so-called crypto winter of 2022.
Bitcoin has made comebacks before and may do so again. But if it cannot succeed while Donald Trump — the self-declared crypto President — is in the White House, then when can it?
Logic dictates that sooner or later Bitcoin’s lack of intrinsic value will become apparent to all, and the bubble will burst for good.
Don’t be surprised if Bitcoin one day falls to zero, writes Ruth Sunderland
It is ‘the tulip bulb of our time,’ as the investor Michael Burry — played by Christian Bale in The Big Short — declared in December, invoking the Dutch tulip mania of the 17th century.
Burry, who is famous for betting against US sub-prime mortgages in the run-up to the financial crisis, is not always correct in his predictions. But when he now warns of ‘sickening scenarios’, he is on the right track.
Bitcoin, the original cryptocurrency, was launched in 2009, when the world was in the malign grip of the great global credit crisis and mistrust of the conventional financial system was running high.
It appealed to drug dealers, terrorists, money launderers and anarchists – and although it has since gone considerably more mainstream, it still does.
The kidnappers of Nancy Guthrie, the mother of US TV host Savannah Guthrie, asked for the ransom in Bitcoin.
Politically, it attracts the anti-establishment standard-bearers: Trump in America, and in the UK Nigel Farage, who has portrayed himself as a crypto champion.
Sam Bankman-Fried, founder of the FTX cryptocurrency exchange
Fans touted it as the future of money: a possible replacement for the dollar as the world’s reserve currency, a hedge against inflation, a safe-haven asset in a turbulent world.
We would all be using Bitcoin for everything from cross-border business transactions to paying for a pint in the pub, according to them.
Bitcoin is in reality rather like Richard Branson — still trying to be seen as daring and rebellious, but in fact rather elderly.
Having been around for 17 years, which is several lifetimes in the fast-paced world of financial innovation, it has fulfilled few if any of its original promises.
Far from replacing conventional money, Bitcoin cannot lay claim to being a currency at all.
Michael Burry, famous for betting against the US housing market, called crypto the ‘tulip bulb of our time’ in December last year
There are three criteria to qualify: it must be a store of value, a medium of exchange and a unit of account. Bitcoin and its crypto cousins fail on all three.
It is not widely accepted for transactions anywhere.
An experiment to make it legal tender in El Salvador has been quietly dropped as a condition of an IMF deal. T
here was no success either in the Central African Republic, the only other nation to try it.
Attempt to use Bitcoin to pay for a pint down the Dog and Duck and you are likely to receive a dusty reception.
There is absolutely nothing behind Bitcoin. With shares, investors are purchasing a small stake in a real business that will usually make things, provide services and own assets.
If you buy bonds — IOUs issued by a company or a government — they come with a promise to repay the loan with interest. Such pledges, when made by responsible borrowers, are not lightly broken.
No such thing applies to Bitcoin. It generates no income and has absolutely nothing to support its valuation other than the blind faith of its adherents.
Nothing comes of nothing. Buyers of Bitcoin should be prepared to lose whatever they put in.
Michael Burry was played by Christian Bale in the 2015 film, The Big Short
JP Morgan chief executive Jamie Dimon described Bitcoin as a ‘scam’ and a Ponzi scheme
One might argue that traditional ‘fiat’ money – the sort we spend every day – is no different, and that the ten pound note in our purse is only worth that amount because of our collective belief.
Not quite. The Bank of England with all its institutional authority stands behind that ‘promise to pay the bearer on demand.’
Cheerleaders will say crypto has now gained validation from some serious institutions such as BlackRock and Fidelity, which now offer Bitcoin Exchange Traded Funds.
These ETFs offer investors a convenient, low cost way of tracking the value of Bitcoin without having to buy it directly, which opens the market up to a greater pool of investors.
So what? That does not create any genuine value, it merely adds more people to the queue when the music stops.
Perhaps the most alluring claim made by Bitcoin’s fanbase is that it is the new gold, an asset that provides shelter in a storm-tossed world.
They say the fact there is a cap of 21million on the number of Bitcoins that can ever be produced creates a scarcity value giving it an edge over the yellow metal.
Hmm. Gold, despite some volatility of its own, is up strongly over Trump’s second term.
Research by Bloomberg found Bitcoin has returned 73 per cent over the past five years, compared with gold at 164 per cent, the Nasdaq tech index at 82 per cent, and the S&P 500 at 75 per cent.
The new gold is not Bitcoin, it turns out. It is gold.
I am not alone in my contempt for crypto. As my esteemed colleague Hamish McRae has put it, Bitcoin is useless and worthless.
It has been claimed Bitcoin is ‘the new gold’, an asset that provides shelter in a storm-tossed world.
Savannah Guthrie with her mother Nancy. Kidnappers asked for Nancy’s ransom to be paid in Bitcoin
Richard Farr, chief economist at the US research group Pivotus Partners, says it is worth zero — and I quite agree.
JP Morgan’s Jamie Dimon, a towering figure on Wall Street, has described Bitcoin as a ‘scam’ and a Ponzi scheme that relies purely on gullible buyers coming in at ever higher prices to keep it afloat.
The late Charlie Munger, who was the long-time right-hand man to the legendary Warren Buffett, called it ‘noxious poison’, ‘stupid’ and ‘immoral’.
There are other reasons I don’t like crypto. I’m hardly a queen of green but I’m not happy that Bitcoin mining consumes more electricity than some medium-sized countries.
I find it distasteful that advertising used by some exchanges such as Coinbase, paints crypto as an easy route to home-ownership.
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I’m not gloating at the prospect of a crash.
Some argue the fallout would be contained because crypto remains a relatively small element of global financial markets.
That is an optimistic assumption. The fallout will extend beyond holders of the currency itself and on to stock markets — and indeed it is already doing so.
A US company called Strategy, whose business is betting on Bitcoin using borrowed money with its own shares as collateral, has lost just under 60 per cent of its value in the past year.
It’s boss Michael Saylor, the poster boy for maxing out on crypto, believes Bitcoin’s best days still lie ahead.
History, however, tells us that big market crises have a habit of starting in small corners of the system and spreading rapidly. Once they do, rationality flies out of the window.
Full disclosure: by temperament I am a prudent investor, not a speculator. FOMO – fear of missing out – does not feature in my long-term retirement planning. I am happy to forgo turbo-charged but risky returns if it means I can sleep at night.
Around eight per cent of Britons — some 4.5 million people — beg to differ. According to City watchdogs, that was the number of people in the UK with holdings in crypto last year. Let’s hope they haven’t bet the farm.
Bitcoin buyers have come out in the past few days seeing the falls as an opportunity to purchase more. Rather them than me. It may not be imminent, but don’t be surprised if Bitcoin one day falls to zero and reaches the end of the road.
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