Around the Campfire: Asset or money?

This week I’ve been heavily involved in our crowdfunding, which I’m happy to report is going fantastically well, with 66% of our target met already, with three weeks still to run! So, thank you to everyone who has invested so far, and to those of you who haven’t yet please click the funding banner in the below article to come and join our movement to make money fairer and safer around the world, using gold as a real, everyday currency.

Whilst speaking to investors and carrying out my daily duties as CEO of an international FinTech, I’ve still found time to ponder the future for cryptocurrencies, a topic that seems to be on everyone’s lips, prompted partly by the recent precipitous collapse in the value/price of Bitcoin, as well as many other altcoins like Ether or Tez… don’t even get me started on Doge.

How can something that swings so wildly make a claim to be money? Bitcoin – the biggest and best-known cryptocurrency – was by Monday this week down by almost 50% from its high this year on 14 April, only one month ago! I would feel uncomfortable about trying to use a Bitcoin to buy anything (even if it was possible), with this kind of rapid rise and fall. The pizza I order could be twice as expensive – or 50% cheaper – by the time I pay for it.

Cryptocurrency supporters like to say that “crypto markets are volatile because they are free. Can you think of a more powerful narrative than that?” Noel Quinn, CEO of the global bank HSBC, obviously can. He said on Monday: “Given the volatility we are not into Bitcoin as an asset class, if our clients want to be there, then of course they are, but we are not promoting it as an asset class within our wealth management business”. He continued: “I view Bitcoin as more of an asset class than a payments vehicle, with very difficult questions about how to value it on the balance sheet of clients because it is so volatile”.

Mind you, HSBC may not be entirely neutral. HSBC has nailed its future to that of China; and last week China gave cryptocurrencies a good kicking, banning financial institutions and payment companies from providing services related to cryptocurrency transactions. The more evidently neutral Andrew Bailey, governor of the Bank of England, said in early May that cryptocurrencies “have no intrinsic value” and people who invest in them should be prepared to lose all their money.

In 2008, Bitcoin was nothing more than a PDF with an idea – that PDF traded at a spot price of zero. A rise to around $40,000 in 13 years is pretty impressive. But that very rise inhibits Bitcoin’s claims to be money, even though its fans reiterate that it’s the money of the future and will replace dollars, pounds, euros and yen. Some of the forecasts now around for Bitcoin’s future valuations are astronomical.

What might prevent Bitcoin from becoming money? Lots of things. For one, it’s just the leading cryptocurrency among thousands of others, all of them vying for attention. For another, producing Bitcoins (and other cryptocurrencies) is a “dirty business”, thanks to its massive consumption of energy, according to Professor Brian Lucey of Trinity College, Dublin. That’s why Elon Musk of Tesla fame did a recent U-turn and said Tesla would not accept Bitcoins in payment.

But perhaps the biggest reason why cryptocurrencies – undoubtedly a brilliant idea – will not become money is because the owners of our fiat currencies (the dollars, pounds, etc.) won’t let them. China will increasingly clamp down on cryptocurrency mining and use, and other jurisdictions are already signalling their determination not to cede control over money.

Lael Brainard, who sits on the US Federal Reserve board of governors, gave a speech this week in which she said a US Central Bank Digital Currency (CBDC) would preserve general access to safe central bank money; promote competition and diversity and lower transactions costs; improve efficiency; reduce cross-border frictions; complement currency and bank deposits; protect privacy and safeguard financial integrity; and increase financial inclusion. Brainard would not have spoken so openly and so emphatically without an OK from the highest level. The US, she said, “is stepping up its research and public engagement on a digital version of the US dollar”.

The widespread yearning for sound money, money that stands a good chance of maintaining its purchasing power, is completely understandable; in that belief, we are aligned with the cryptos, it’s just that I see gold – which can of course fall in value as well as rise – doing that rather better in the long term, than any cryptocurrency.

Until next week,

Jason