It was just before Christmas that I was at a function, listening to a learned colleague boast about his son’s prowess at investing in Bitcoin. I was told Bitcoin was the currency of the future. That Bitcoin was better than gold, a brilliant store of value, and with blockchain technology could settle in an instant.
I was looked upon like a leper for daring to suggest an alternative theory – that Bitcoin and its Crypto cousins were the modern day pyramid schemes, and that investors were like lemmings being led to the cliff. At the time, one Bitcoin was worth $19,511 USD.
Mining the environment
Ironically Bitcoin is not as efficient and cool as some would leave you to believe. For instance, did you know that to ‘mine’ a Bitcoin, you need monstrous computers going 24/7 solving complex mathematical equations and algorithms. In the process you chew up copious amounts of energy, creating an environmental nightmare… and at the end of all that, you own 1 Bitcoin, ie one bit of a mathematical equation. Yay!
More and more, the events of the last few weeks have vindicated my Ponzi theory. Japan’s Coincheck was recently the victim of a $500 billion dollar heist. Hackers backed up the truck to their version of a cyber-Fort Knox, loading coins from around 230,000 investors/users into the back.
Regulation rears its head
The cryptocurrency market has operated largely unchecked as government regulators either believed it to be a fad, or just too slow to react. Meanwhile darker players attracted to the honeypot of technology looked at better ways to relieve people of their money. Some set up alternative exchanges, others new coin currencies, and some even went as far as to create exchange traded funds on regulated exchanges.
The Coincheck debacle had proven it was something that could threaten the financial stability of countries as investors lose money unchecked. This has finally pricked the interest of regulators.
At the time of writing this article, Bitcoin is now worth less than half of its value in December. In the last couple of days, it has fallen a further 20%, to be worth ~$7,000. Gold coincidently, has proven itself as a store of value, remaining firm over the same period.
Regulators have stepped up their pressure on Cryptos, with the US’s SEC and Commodity Futures Trading Commission being asked to testify before the Senate. The SEC had recently told BitConnect which in 3 months raised $3 billion to cease-and-desist. The CFTC shut down My Big Coin which was a ‘swindle’ which attracted $6m (According to the NY Times). Some of these are so nasty, that they get hacked straight away, or even worse, shut down by the operators after the funds were raised.
Still seeing this as a store of value?
Thankfully regulators are finally wising up. Even banks are beginning to play a part in protecting their consumers – some have begun banning the use of credit cards to fund crypto purchases.
Bitcoin and its Crypto cousins have created something special for markets. The blockchain technology it runs on is being used on all sorts of exchanges now, speeding up the tracking and settlement of transactions globally. But anything that is unregulated will unfortunately attract darker forces, and a mass heist of personal wealth is likely to ensue.
