Bitcoin: fiat rocks
Cryptocurrencies were meant to challenge the financial establishment
Bitcoin could soon have its own chamber of commerce. The news is on a par with anarcho punk band Napalm Death announcing a lounge jazz album. Cryptocurrencies, as championed by libertarians, were meant to challenge the financial establishment via fiat money, not apply for membership.
The disruptive dream has fallen flat with the bitcoin price. This has slid by two-thirds to $6,440 since December. The implied value of bitcoin in issue is around $107bn. If the cryptocurrency was an S&P500 company, it would not even make it into the top 50.
Fed officials meeting at Jackson Hole are unlikely to debate the threat to the dollar. In one simplified scenario envisaged by UBS, bitcoin would need to rise 30-fold to cover a day’s transactions on the Visa payments network. Analysts at the big bank also modelled demand, estimating that 70 per cent of price action is speculative.
Crypto punks may take UBS’s verdict that “bitcoin cannot be considered money or a viable asset class (yet)” as a compliment rather than an insult. But there is an obvious reason why regularising bitcoin appeals to squarer promoters, such as the Winklevoss twins, founders of the US Gemini Trust exchange. Niche demand for bitcoin and its peers can never support more than a niche intermediary business. To bulk up, mainstream funds are needed.
The Winklevosses want to launch an exchange-traded fund investing in bitcoin. The US Securities and Exchange Commission has rejected their application twice. Unaccountably, it thinks bitcoin trading could be open to manipulation.
Self-regulatory organisations help US watchdogs police the markets. The twins support moves to set one up. The first step is a working group of crypto exchanges, the Virtual Commodity Association. Consumer protection is among its priorities. Perhaps it will organise an annual dinner dance. The real hard core commodity, fiat money, will continue to serve governments, fund wars and sway the lives of billions.