Down and out? Don’t bank on it….

Thursday, 8th March 2018

Down and out? Don’t bank on it….

Bitcoin broke back through the $11,000 level last week – after trading around the $10,000 mark for the previous month….

Given that the Bitcoin price went into freefall during the earlier part of the new year – dropping below the $7000 mark at one point – the recent gains are a boon to investors hoping that the success story of 2017 can make a comeback….

But the current price is still plenty short of the $20,000 high registered by the cryptocurrency back in mid-December and many investors are sitting on losses….

By any reasonable measure, Bitcoin is still down and, whilst it is so, a queue is forming to deliver well-aimed kicks – to Bitcoin specifically and cryptocurrencies generally….

  • The good old days….

Take Microsoft founder, Bill Gates, for instance….

He’s one of the world’s richest men and one of its most recognizable entrepreneurs. People are interested what he has to say – on any subject….

Where cryptocurrencies are concerned, he’s outed himself as a sceptic. Appearing on Redditt recently in an online ‘Ask Me Anything’ session, he said this….

‘The main feature of crypto currencies is their anonymity. I don’t think this is a good thing. The government’s ability to find money laundering and tax evasion and terrorist funding is a good thing. Right now, cryptocurrencies are used for buying fentanyl and other drugs, so it is a rare technology that has caused deaths in a fairly-direct way. I think the speculative wave around ICOs and crypto-currencies is super risky for those who go long.’

Gates is basically concerned that criminals and terrorists use cryptocurrencies to finance their activities and to launder proceeds….

I can only conclude that Gates would prefer a return to the good old days when terrorists and criminals using domestic fiat cash and the established international banking system to get their black work done….

  • The Bank of England chief concurs….

Bank of England chief Mark Carney is of a similar mindset….

‘Authorities are rightly concerned that given their inefficiency and anonymity, one of the main reasons for their use is to shield illicit activities. This cannot be condoned….’

In what is seen as a major intervention, he called for a crackdown on the cryptocurrency mania. In a speech made last week, he said this….

‘The time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system….’

He conceded that cryptocurrencies don’t pose a risk to the financial stability at this point – but that they might do in the future….

Carney doesn’t advocate banning cryptocurrencies. But he does support regulation….

‘A better path would be to regulate elements of the crypto-asset ecosystem to combat illicit activities, promote market integrity, and protect the safety and soundness of the financial system….’

  • Back-up from the Chief Economist….

Another Bank of England bigwig, Andy Haldane, weighed into the melee on Tuesday….

The Bank’s Chief Economist reiterated Mark Carney’s view that cryptocurrencies don’t yet pose any major threat to the financial system – and might never do so….

Apparently, cryptocurrencies represent less than 1% of global wealth and lack the ‘scale’ required to bring down the banks….

But Haldane did say that consumers should be aware about the dangers of investing in the cryptocurrency sector. In a BBC interview he said this….

‘There’s lots of potential risks there, one of which is the danger to the consumer from buying into this stuff.’

Asked if he would consider buying cryptocurrencies himself, Haldane responded that he would not because he is risk-averse….

  • Bitcoin at $100 is more likely than $10,000….

Ken Rogoff has been getting in on the act too….

The Harvard economist and former chief economist of the International Monetary Fund has set his sights on what Bitcoin will look like a decade from now. He says this….

‘I think bitcoin will be worth a tiny fraction of what it is now if we’re headed out 10 years from now … I would see $100 as being a lot more likely than $100,000….’

I applaud Rogoff’s ability to see so far into the distant future. I must confess that my own third-eye works much less well, and I have next to no idea what Bitcoin will look like this time next month….

But Rogoff moves in the right circles and he has his finger on the pulse….

He sees the kind of regulation that Bill Gates and Mark Carney are advocating as sounding the death knell for Bitcoin….

‘Basically, if you take away the possibility of money laundering and tax evasion, its actual uses as a transaction vehicle are very small….’

  • Reading the signs….

Swirl the teacup, then read the tea-leaves and you might well take the view that Bitcoin has had its day in the sunshine and is now squarely in the sights of the establishment – ready to be tamed….

Leading central bankers, top economists and other influential voices of note – belonging to figures that the masses look to for direction, guidance and truth – appear to be setting their stall out….

But in the background other developments are taking place….

Developments that suggest cryptocurrencies are from representing a dead duck on the water….

Developments that support the view that cryptocurrencies are not only here to stay but will play a big part in the unfolding future….

A couple of weeks ago in the US, a company called Circle (which operates a peer-to-peer payment app) bought another company called Poloniex (which operates a major cryptocurrency exchange that handles more than $2 billion in trades every day) for $400 million….

Ahead of the purchase, Circle consulted its investors….

One of those major investors is Goldman Sachs – one of the most prominent and influential financial institutions on the planet….

And according to news-agency Reuters, Goldman Sachs signed off on the deal….

  • A change in wind direction….

That’s significant. Banks have been highly critical of cryptocurrencies up until now….

And when the media spotlight is shining their way, they continue to be so….

But behind the scenes, the wind is slowly changing direction….

The Circle/Poloniex deal means that Goldman Sachs are now invested in the sector – with their own money. They now have skin in the cryptocurrency game….

It’s a clear signal that Goldman Sachs – right at the top of the information food chain – see cryptocurrencies as more than just a passing fad or a speculation mania that has blown itself out….

More deals involving other major financial institutions are likely to follow – bringing fresh billions into the cryptocurrency sphere….

So far 2018 has been a disappointment for cryptocurrency investors when compared to the stellar returns produced in 2017….

But it is way too early to write cryptocurrencies off. The Circle/Poloniex deal suggests the cryptocurrency game might only just be getting started….

That’s how it looks from here….

All the best,

Dave Gibson

Money Truths