Bullion Bulletin: Pandora’s Box opens

In ancient Greek mythology, Pandora supposedly opened a container which was left in the care of her husband – and out of the box sprang a host of curses that caused global misery. ‘Pandora’s Box’ entered the lexicon as a metaphor for a gift that actually contains horrors. Maybe it’s unfair to the blockchain technology to see it as a latter-day Pandora’s box; but it’s certainly created a lot of pain for a lot of people recently. And the pain is unevenly distributed.

Blockchain is most famous for facilitating the development of cryptocurrencies, Bitcoin especially, although the technology has many other non-cryptocurrency uses.

There has been a slew of bad news about cryptocurrency in the past couple of weeks. Bitcoin has lost 70% of its value since last November and the estimated value of the total cryptocurrency market over the same period has fallen by two-thirds.

Some commentators argue that instability is inherent in the cryptocurrency world, such is the volatility of some tokens. Instability took a firmer grip last month when a ‘Stablecoin’, TerraUSD, failed to maintain its peg to the US Dollar, causing the peg of its larger Stablecoin peer Tether to wobble. The panic rapidly spread to another Stablecoin and its associated cryptocurrency, Luna. Ripples have gone through the cryptocurrency world, with other cryptocurrency entities, such as the Hong Kong-based Babel Finance, pausing withdrawals and redemptions; the Singapore-based cryptocurrency hedge fund Three Arrows failed to meet margin calls from lenders; and Celsius Network, which provides “a platform of curated services” for cryptocurrency users to “introduce financial freedom through crypto” (according to its website) has suspended all withdrawals.

The problem for cryptocurrency is that it is “being hammered by the broad re-pricing of risk assets in the wake of accelerating inflation, higher interest rates and a possible recession” says the Financial Times.

For those who bought cryptocurrency in its early days, the losses may be tolerable. Bitcoin started trading in July 2010 at $0.0008. The fact that it has dropped to around $20,000 today will not bother an early buyer – but it will create hardship for many who bought when the price was much higher.

That pain may include El Salvador, which introduced Bitcoin as legal tender last September, when the Bitcoin price was around $50,000. Bloomberg has estimated that the Central American country has lost almost $56 million on the deal, although as the country’s minister of finance correctly points out, if the country has not sold any of the coins no loss has been incurred.

But individuals who cannot take a long-term view of their investments may have to crystallize their losses. The Pew Research Centre published a report last year that found Asian, black and Hispanic adults are more likely to have bought cryptocurrency than their white counterparts. A survey by Ariel Investments and Charles Schwab, published in April this year, found that what it called “risky” investments “are growing in popularity, especially among younger Black investors”; worse, almost a third of those surveyed invested in something they did not fully understand because it seemed like “a sure deal”. Buyers who are late to the cryptocurrency party will have to nurse their wounds; in the UK, the US, and the European Union, cryptocurrencies do not carry regulatory protections.

Pandora’s box has been opened. As in ancient Greece, it will be difficult to get all the freed nuisances back inside it. On the bright side, Glint’s Creative Director last week saw one of his creations lit up on an enormous screen in Manhattan’s Times Square, as part of the blockchain linked, NFT.NYC Conference.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.