Just because the price of bitcoin has increased this year and you can still benefit doesn’t mean you have to join the crowd.
Crypto, thanks to the support of President-elect Trump, has been brought in from the cold and is at risk of gaining respect.
Hence the uproar – but nothing much has changed. Describing crypto as a currency is misleading, because it lacks the essential characteristics of money: it is not a unit of account, it is not a true store of value, and it is not an accepted means of exchange.
The current news is that everyone is a winner. Charities like Gamblers Anonymous know the truth is very different. They are dealing with the growing number of crypto victims: people who have lost their life savings and broken relationships by chasing bitcoin fortunes.
Perhaps it would be better to name it ‘betcoin’. The fact that crypto has lured problem gamblers speaks for itself. This speaks to the frenzy of betting, not the calm decision-making process that investors should approach their portfolios with.
Crypto has become too big to ignore. About seven million people in the UK, about 12 percent of the adult population, own crypto assets, according to the Financial Conduct Authority watchdog.
Gamble: Just because the price of bitcoin has increased this year you still have to be profitable doesn’t mean you have to join the crowd
That’s frustrating. Many of those people may not be aware that crypto is unregulated and that if they fall for the scams, they will not be covered by any UK compensation scheme.
It was also disconcerting to learn that shares were oversold on one of the UK’s biggest investment platforms last month, MicroStrategy. This US-listed company is bitcoin on steroids – it buys heavily on debt, financed by cash and other free cash instead of IOUs converted into MicroStrategy shares .
These ‘investors’ are betting that the value of bitcoin will increase, helped by MicroStrategy’s buying activity, and this will in turn increase the value of the shares. The current market capitalization is more than what bitcoin is worth.
Catch and leverage – the use of debt to increase exposure to an asset, real or speculative – increases profits, but also increases losses.
Students of the history of the stock market will know that when London investors were surprised to be crypto experts and the old man on the street started to ask if he should buy bitcoin for his baby grandson, it was when to be careful. The crypto-boom is an ominous sign for governments, conventional investments and central banks. That explains the wave, but it doesn’t have to.
Wall Street legend Jamie Dimon, who led JP Morgan through the financial crisis and is perhaps the world’s leading crypto-sceptic, has three reasons why governments should shut down the end.
First, because of the use of crypto to finance terrorism, secondly because soon after it will break the little old ladies and thirdly because governments like to control their money which crypto can reduce at that.
Trump said in the summer that Dimon had changed his tone on crypto and there were reports that the President-elect was considering him for Treasury Secretary. At the event, that role went to Scott Bessent, a crypto-hedge fund manager.
Dimon was right all along. The longer the bitcoin bubble bursts, the more painful it will be.
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