When it comes to bitcoin and crypto generally, I’m agnostic. I will admit that it’s unusual for me not to have strong opinions on something.
Crypto is also one of those topics where you’re deemed to be “for” or “agin” it by the two tribes involved, and sitting on the fence is not seen as a viable option. But from up here on the fence, I don’t really care about that.
So what’s my take on crypto? And what does the Coinbase listing suggest about where we are right now?
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Bitcoin clearly has value – this is not just based on vapours
What form does this crypto agnosticism take? On the “pro” crypto side, I believe that crypto is a “thing”. It’s not just a bubble or a scam or a tulip bulb (which is a lazy comparison anyway, given that tulips do have plenty of value and tulipmania is the most wildly overhyped bubble in history).
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And I’m not just talking about the blockchain and distributed ledgers. They do seem to have a lot of potential for various database-type applications and property registers. But I can see why the cryptocurrencies themselves have real value too.
People really tie themselves in knots on this point. You see it all the time in discussions about gold as an asset. Even Jerome Powell, head of the Federal Reserve, was talking about it yesterday. “For thousands of years, human beings have given gold a special value that it doesn’t have” as an industrial metal, he said, as if this “special value” is created from nothing more than fairy dust.
It all boils down to this idea that something only has value because human beings believe it does (true), and that this is somehow a weak or irrational foundation for said value (false).
When you boil it right down, absolutely everything in our lives – from objects to concepts – only has value because human beings believe it does. There is no such thing as “intrinsic” value, if by intrinsic you mean a financial value that would exist in the absence of all human beings.
What people are really saying when they resort to that argument is: “I don’t understand why other human beings value this object (or social structure), so I’m going to dismiss it as irrational”.
There’s no doubt that human beings can be irrational at times, both as crowds and as individuals. But mostly they’re not. They accord value to things according to their function.
Gold has persistently had value because, as I’ve said before, of all the elements, it is the one that best matches up with the ideal characteristics needed to serve as a compact store of wealth and as a form of money.
In other words, gold has a function which still matters enough to sufficient numbers of human beings to give it a value. And this is the key: gold’s value is underpinned by its function, not just on some fluffy notion of belief or mania.
The same clearly goes for bitcoin. My inherent laziness has thus far prevented me from doing any more than dabbling around the edges of bitcoin and I really can’t bear all the admin that goes with it.
But if I suddenly needed to get my money out of the country in a hurry? You can bet I’d be on Coinbase (or whatever) like a shot. We’re talking about a bearer asset that can be securely moved anywhere in the world, whenever you like, without worrying about customs seizing it or anyone even being aware that you own it. You’re trying to tell me that has no value?
And there are plenty of other use cases for other forms of crypto. Proof of digital ownership has value because digital assets have value. The potential to dematerialise paperwork and cut out counterparties and all the rest of it, also has value.
So this idea that crypto is a big fad – I have no time for that. So what about the other side of the (crypto) coin?
I have no idea how to value crypto
Well, my issue with crypto – and the root of my agnosticism – is that I still have no idea what it’s worth. So I agree that it has value, and it has use cases. But I don’t feel confident about putting a value on it, which is one reason why it’s not part of my core investment portfolio.
I can also see a great many risks in the sector. The bigger crypto gets, the more of a threat it represents to the world’s most powerful institutions – governments.
As Merryn points out in this week’s issue of MoneyWeek magazine (out on Friday, subscribe here now and not only do you get six issues free, you also get a beginner’s guide to bitcoin) bitcoin is not the first independent currency running in competition with “official” ones. History is full of them. But guess what? The authorities tend to shut them down when they get too big and start challenging the sovereign currency.
You can debate the rights and wrongs of that until kingdom come. But that’s not what I’m here to discuss. My point is that the more successful these currencies become, the more chance they have of being shut down or regulated into the background.
And regulation of the sector more generally is another reason to be aware that “going mainstream” comes with a lot of its own risks. That said, as for the current state of the market, I suspect it might be due a breather. But I don’t think we’re close to a crash (he said, hesitantly).
Coinbase’s mildly disappointing IPO doesn’t suggest a top
Coinbase listed on the stockmarket yesterday. It’s a massive cryptocurrency exchange and seen as a play on the sector as much as an investable business of its own.
What really interested me is that for all the hype ahead of it – which manifested itself in bitcoin and many other cryptocurrencies hitting new highs – the Coinbase listing was actually a bit of a damp squib.
I caught a clip of Jim Cramer on CNBC saying that he reckoned one analyst’s forecast of a $600 share price was correct. Instead it opened at around $381 and closed at $328, hitting a high of just under $430 in between times.
Yes, that still puts a pricey valuation on Coinbase (I’m not saying it’s cheap!). But that level of manifest scepticism makes me think that we’re more likely to see a cooldown period. If Coinbase had gone off with a bang, I’d be more confident of saying that crypto was near a proper top, but this doesn’t “feel” like it.
And in the absence of stronger opinions, or confidence in valuing this stuff, that’s today’s opinion from this crypto agnostic.
By the way, as I mentioned higher up, if you’d like to get a beginner’s guide to bitcoin from someone who does have a better handle on this stuff, you can get one free when you subscribe to MoneyWeek magazine. You also get your first six issues free.
