Bitcoin and its smaller crypto cousins are not going to disappearby Andy Davis / March 22, 2018 / Leave a comment
Published in April 2018 issue of Prospect Magazine
Bitcoin has crashed—but cryptocurrencies are here to stay. Back before Christmas, Bitcoin was setting the world alight. News stories about it popped up wherever you looked and the line on its price chart was vertical—heading to infinity and beyond, as Buzz Lightyear might have observed. In fact, Bitcoin rose to $20,000 before the price tumbled. Although I’ve never owned cryptocurrency, I can’t help wondering what happens next. It’s tempting, especially after such a spectacular bubble, to write off Bitcoin as a speculative fad. The frenzy may have subsided, but I suspect that Bitcoin and its smaller cryptocurrency cousins are not going to disappear. I say this, even though there are obvious problems with them, including the whiff of criminality and tax evasion that surrounds Bitcoin itself and the somewhat discouraging fact that hackers seem to steal large quantities of them every so often from online trading venues. Those quibbles aside, the striking thing about cryptocurrencies is the sheer range of players who feel obliged to engage with it. Its early libertarian promoters cling to digital currencies as a global form of money beyond the control of central authorities. Techno-evangelists see them as an improved means of payment. Regulators worry that they represent an efficient way to transfer illicit and untaxed wealth across borders—one of the biggest threats to Bitcoin owners is probably that they make serious efforts to stamp out trading in it. But how hard will they try? The cryptocurrency boom represents a global experiment in digitised financial innovation. Central banks are fascinated by the possibilities of state-controlled digital currencies as successors to cash and are watching events closely. Despite the bubble, officials seem comfortable with the fact that cryptocurrencies are still too small to pose a meaningful threat to the financial system—so let the experiment continue. For those with a yen for speculation, meanwhile, cryptocurrencies are a godsend, confirming once again their most cherished belief: that if you are in the right place at the right time it is possible to make life-changing gains overnight. For Lloyds Bank and Virgin Money, the risk they might end up on the hook if customers got into trouble after using their credit cards to speculate in cryptocurrencies was too much to stomach. They started blocking credit card-funded purchases in early February. Others are heading in the opposite direction. One of the largest financial advisory companies, de Vere, recently launched an app that allows users to hold and trade a handful of the main cryptocurrencies. For a company that makes its money advising people on highly-regulated, mainstream investments, aligning itself with an “asset” that some regard as the preserve of criminals and gamblers might seem unwise. But perhaps de Vere is just “following the money.” If that’s where people want to go, being seen to help them could simply represent an opportunity to create relationships with tens of thousands of individuals who might one day require advice on more conventional financial matters (if they have any money left). The crypto-bubble might have burst, but there are too many players with an interest in the outcome of this vast experiment for cryptocurrencies to vanish into thin air.