Letters to MoneyWeek: Cryptocurrencies are overhyped
A selection of letters sent to MoneyWeek magazine, and their replies.
The current feeding frenzy surrounding the rapid price increase of cryptocurrencies misses an important point. As speculative hype they've succeeded. As currencies they have failed. The point of digital currencies should be to offer an alternative to sovereign money. As such they could offer protection against government confiscation, inflation and restrictions on the free movement of capital. That's why the Venezuelans are using bitcoin. As a bonus they avoid broker and currency exchange fees, and are more secure with blockchain.
Money should be boring. There will be some relative exchange movement depending on a country's economic performance, but not the wild gyrations of the cryptos. The Economist's Big Mac index is a good indication of a currency's correct valuation it should take the average worker the same time to earn the money to buy a burger in every country. On that basis, if bitcoin was working properly you should be able to buy a Big Mac with the same number of bitcoins anywhere in the world.
I've made some money on bitcoin, but what I'd really love is an alternative to sovereign currency that I can trust as a secure, supranational store of wealth. The volatility of the cryptocurrencies means they are nowhere near that, and that's a great shame.
Your letter arrives in a week in which we are writing about the recent surge in the value of cryptocurrencies such as bitcoin and ether (page 6), as well as featuring one contributor's own unhappy experiences speculating in the more murky corners of the cryptocurrencies market.We share your scepticism about the cryptocurrencies hype and whether they have achieved any of the lofty aims that their proponents have held out for them. In our view, the technology underlying these developments is interesting and has the potential to be revolutionary in ways that we can't yet predict. However, the uses to which it has so far been put cryptocurrencies and initial coin offerings are so risky and so volatile that they serve mostly to illustrate the obstacles that remain to be overcome.
What's more, even if these issues are resolved, we suspect the best applications of blockchain will be in record-keeping and transaction processing, not as the basis of a digital currency that can act as a store of value. That's largely because there is already an asset that fills this role and has done for centuries: gold.
MoneyWeek's views on gold are well known we like it because it has historically been the best insurance against governments debasing their paper currencies through inflation.We expect it to continue to outshine any digital challenger.
We should ditch most EU rules
Philip Aldrick in The Times (quoted in MoneyWeek 852) says that UK exporters will have to stick with regulatory equivalence if they want to keep selling to the single market as do around 170 other countries that are not in the European Union.
What he omits to point out is that all UK companies currently have to comply with EU regulations even though over 90% of them don't even export to the single market. But after we leave the EU our companies will only have to comply with EU regulations when they export to the single market. They will then be free to innovate, when exporting to markets beyond the EU, which are on the rise not in decline. They will be able to produce what those markets want, without being stifled by regulations designed to protect EU companies.
Why did Mr Aldrick forget to mention that and the fact that our exports to the single market have fallen to 40% over the years, while our exports beyond the EU continue upwards? Clearly our future is moving away from the EU with its one-size-fits-all approach to everything, including the eurozone and its demands for bail outs to keep it afloat.
MoneyWeek backed Brexit, believing that we would be better off if we could make our own laws in areas where the European Union is guilty of regulatory overreach, while still having a close trading relationship with the EU. In short, we favour a relationship similar to that enjoyed by Norway or Switzerland, which are outside the scope of large amounts of EU regulation while being members of the single market.
We expect that when the arguments that we are seeing in the Brexit negotiations are concluded, this is more or less the relationship that we will have. However, this may require us to maintain regulatory equivalance with the EU across many sectors. This is not purely to ease exports to the EU, but also because many other countries are likely to harmonise standards with the EU over time and shared standards will make it easier for us to trade with them as well. If such standards are sensible, we see no problems with this.
Cash ensures our privacy
Abolishing cash as described in your editorial letter in MoneyWeek 854 is tantamount to depriving the private individual of one of his foremost fundamental rights of freedom. No arguments about fighting drug dealing, money laundering, arms dealing, tax evasion and so on weigh up to that. Relatively speaking this is only a small percentage of world transaction volume. The aforementioned crimes can be fought differently and more effectively.
The state, which is already far too large, is beginning to manifest itself as the private individual's arch-enemy number one, instead of focusing on its core responsibilities. The moment the state forces the cashless society upon us, people will find new ways as they always have done to keep commerce private, be it through intelligent barter or other means. Humans have always striven for and been dependent on keeping these fundamental rights of privacy and freedom respected. In my home country of Germany, these principles are still recognised, and I hope that this will continue.
We are in complete agreement with you. Our letter was not intended to endorse the abolition of cash, but to note that this is the direction in which society seems to be travelling due to our apathy as much as anything else. We believe that this should be resisted for exactly the reasons that you give.
Writing to MoneyWeek
MoneyWeek welcomes letters and emails from readers, but unfortunately we are not able to publish or reply to all of them. We may edit letters prior to publication. All responses are for information only and should not be relied upon in making investment decisions. Our staff are unable to respond to personal investment queries, as MoneyWeek is not authorised to provide individual investment advice. Please email us at email@example.com, or write to us at Editor, MoneyWeek, 8th Floor, Friars Bridge Court, 41-45 Blackfriars Road, London, SE1 8NZ.