Is bitcoin “fool’s gold” or the new gold? asks James Dean in The Times. The cryptocurrency hit a new record high of $42,000 late last week, only to plunge by more than 20% over the weekend. Yet at around $34,500 in the middle of this week, bitcoin has still rocketed since October, when it cost $11,000.
A poor payment option
Once the preserve of “basement-dwelling libertarians” who hoped to upend the financial system, today bitcoin is close to becoming a mainstream investment, says The Economist. It turned out to be poor payment option: the network can only handle a few transactions per second.
Instead, the new hope is that it could emulate gold as a store of value that sits beyond the reach of government mismanagement. Younger investors appear to prefer digital wallets to the hassle of managing physical bullion. Yet “fraud and theft” are still “rampant” in the world of bitcoin trading. What’s more, the cryptocurrency’s price tends to move in line with stockmarkets, undermining its credibility as a “safe-haven” asset.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Bitcoin’s reputation for “extreme price swings” is still limiting its institutional uptake, says Dean. A store of value is not that useful if it can lose over a fifth in a weekend. Still, those who think bitcoin can “shake off” these problems think there could be big returns to come. JPMorgan estimates that bitcoin would have to quadruple before the total market value matched the $2.7trn that private investors have put into gold. That could imply an eventual bitcoin price of $146,000.
Regulators remain cautious
The comedian John Oliver once joked that bitcoin is “everything you don’t understand about money combined with everything you don’t understand about computers”, says Gavyn Davies in the Financial Times. Regulators are still cautious. This week the Financial Conduct Authority (FCA) warned British investors that “cryptoassets” involve “very high risks”. Consumers who invest “should be prepared to lose all their money”.
Yet ultimately governments will be more comfortable with the idea of cryptocurrency as a replacement for gold than cryptocurrency as a replacement for sovereign fiat money. The latest “frenzy” looks “dubious” to me, but we live in strange times.
Slowly but surely, bitcoin is “being domesticated” says Gian Volpicelli on wired.co.uk. The latest bitcoin run has felt positively “staid” compared to the unbridled mania of the 2017 boom and crash, when investors burnt their savings on “unrealistic promises of endless revenues”. Crypto-based hedge funds doubled their assets under management to $2bn between 2019 and 2020, according to a report from PwC and Elwood.
Yet perhaps the cryptocurrency’s rise is a sign that we have all got a little wilder too. The “chaos and despair” of 2020 has shaken faith in conventional monetary and political systems, says Lex Sokolin of blockchain business Consensys. As a result, institutional investors are looking for an “apocalypse hedge”.
-
Who is the richest person in the world?The top five richest people in the world have a combined net worth of $825 billion. Who takes the crown for the richest person in the world?
-
Top 10 stocks with highest growth over past decade - from Nvidia, Microsoft to Netflix, which companies made you the most money?
We reveal the 10 global companies with the biggest returns since 2013. One firm has posted an astonishing 9,870% return, meaning a £1,000 investment would now be worth almost £82,000.
-
Crypto is “Monopoly money”
FTX won't be the last crypto scandal, because cryptocurrencies mirror the worst aspects of the finance industry.
-
OpenAI – corporate drama unleashed
OpenAI, the firm behind ChatGPT, was in uproar as its boss was booted out, briefly snapped up by Microsoft and then brought back again.
-
Can Lidiane Jones be Bumble's perfect match?
Dating app Bumble is taking on Lidiane Jones, a well-regarded leader in tech, as its new boss. Can she work her magic in a new arena?
-
Are corporate bonds a good bet?
Corporate bonds pay a slightly higher yield than governments, but spreads aren’t generous by past standards.
-
SoftBank’s shares slump on quarterly loss
Japanese investment group SoftBank’s technology funds have struggled, not least because of an investment in WeWork.
-
M&S shares shift from frumpy to fabulous as pre-tax profits are up by 56%
M&S is performing strongly and has announced it will pay a dividend for the first time since the pandemic.
-
The rise and fall of Sam Bankman-Fried – the “boy wonder of crypto”
Why the fate of Sam Bankman-Fried reminds us to be wary of digital tokens and unregulated financial intermediaries.
-
Three defence stocks set to flourish in an era of instability
A professional investor tells MoneyWeek where he’d put his money. Tom Bailey highlights three defence stocks that look promising.
