Missing the point on bitcoin

It may be boring to say that bitcoin is useless as a currency, but that blockchain technology has a future. But it's true, says Merryn Somerset Webb.

Last week I wrote about bitcoin. It is (or was, before its 50% crash) one of the most obvious speculative bubbles our generation has ever seen. This didn't go down well with some. It turns out that writing about cryptocurrencies is nearly as dangerous as writing about Scottish politics. I got some very nasty mail, presumably from people who have bet a bit too much on bitcoin (lots of swear words). I got some silly emails (arguing mainly that as bitcoin has gone up a lot in the past, it will go up a lot in the future). And I got a good number of sensible, clever and thoughtful emails.

But still a lot of them missed what I think is the point. It has become pretty boring to say that blockchain technology has a future. But it probably does. A shared ledger technology that allows encrypted data to be exchanged privately between individuals and companies could disintermediate stock exchanges, transform payment systems, and (my own hobby horse) reinvigorate shareholder democracy, by enabling the return of voting power to the real beneficiary owners of equities (retail investors like you and me). It's also likely at some point to create real profits.

But those profits will accrue to the systems, not to the coins, which are just the tokens that permit the exchange. The value is in the former, not the latter. The only way to think the opposite is to assume that a cryptocurrency might really become a global medium of exchange that everyone needs in order to transact. But unless that currency is government-created or sponsored, it probably won't. Why? Because states get to say what is money and what is not. Try paying your taxes in bitcoin, or settling your debts with a Nocoiner (the crypto enthusiast's name for those who missed the bubble) with bitcoin. You won't find it easy. And if a medium of exchange isn't liquid and legally acceptable (because trading is banned, or it falls foul of money-laundering rules whatever) it can't act as money. No amount of hoping, praying, or use of the phrase "asset class" can change that.

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Regular readers will know that we love innovation, that we constantly praise human ingenuity, and that one of our aims is to ensure that you get into the next long-term sustainable big thing in good time. But you should, I suspect, put bitcoin and the blockchain to one side for now. It'll be a while before it is clear who will find a way to create sustainable value from the systems (read our own Dominic Frisby on this at our website). Instead, see how technology is transforming much of Africa, then read Mike Tubbs's cover story on how firms that are already successful are using research and development investment to gain a growth edge. These are the kinds of investments that will make you tangible returns in real money.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.