Updated: Apr 22, 2022
Millions of people have bought into the idea that crypto currencies can make them rich, but are these just fake booms that will eventually turn into a bust, asks the New Statesman.
The article makes a number of interesting points.
The first is that it is unlikely that Bitcoin will lead to riches for all. 'Retail' investors make up more than 75% of the addresses but only own a tiny fraction (0.22%) of the market. The top 100 Bitcoin accounts own more than the bottom 38 million.
We think this point is fairly valid. It is unlikely that Bitcoin is a tool of egalitarianism. Rather, like all technologies before it, if it is successful we will simply see the rise of a new tech-aristocracy. Just as Musk, Bezos, Thiel, Brin and Page are all household names and the stars of the internet age, we will likely see the emergence of new winners of this technology.
That's not to say Bitcoin doesn't have the potential to serve the masses. If, as its innovator, the coder with pseudonym Satoshi Nakamoto had intended, it does become a stable asset class akin to digital gold, then it provides a practical vehicle for savings to evade central bank missteps. As distant a prospect as that seems in major developed nations, given Bitcoin's historical price volatility (though we endure our far share of inflation and currency erosion too), citizens of Venezuela, Zimbabwe, Sri Lanka and now Russia, can see the benefit of having a portable digital asset to secure their life savings whilst their local currencies are in free fall. The use case in emerging markets is far more clear. Further, if you do study financial history, then from time to time it has a strong use case in developed markets too, as we too do endure crisis, albeit less frequently.
The second point the article focuses on is the element of trade manipulation around the period 2013, when it was discovered that two bots had actually engaged in a substantial amount of the trading of the 'bull market' of 2013. It is highly likely that the crypto market is more open to manipulation that conventional markets. Terming it the new 'wild west' wouldn't be unfair.
That said, given that the activity on each 'wallet', or in trading terms account is visible to the entire network, there is also remarkable transparency of activity. An entire eco-system of analytics around this new open market is evolving, with analysis of the activity of major holders.
The article goes on to analyse the Tether stablecoin, which was investigated by the New York Attorney General. Stablecoins permit holders to own crypto coins that are backed by real world assets. The NYAG found that Tether did not own one dollar of assets for every one Tether as represented. Tether reached a deal with the NYAG, but admitted no wrong doing, arguing instead that "there was no finding that Tether ever issued tethers without backing or to manipulate crypto prices".
We are not sure this is a new point. Tether has been subject to scrutiny and suspicion for sometime, with naysayers arguing that it was in fact not backed by any assets. In fact the NYAG investigation likely bolstered faith in Tether and the asset class as a whole, as it had been investigated and they hadn't "admitted wrongdoing" in their final deal with the AG.
It is certainly an article that represents the positions of naysayers well, but we believe there are more substantial arguments both for and against this new asset class. In a three part series we explore digital currencies. See the first article discussing Ancient Money here.