Bitcoin is gathering momentum and this time it’s different
“Ah, but this time it is different!”. One of the oldest cries in markets when certain trading patterns look to be repeating themselves.
It very, very rarely is quite as different as many would like to have it. The key drivers of markets, the terrible twins greed and fear, don’t change.
But what’s with Bitcoin hitting US $60,000, a level which can, if it stands on its tiptoes, espy the historic all-time high of US $67,567. That might still be a difference of just a tad under 15 per cent but, given the current upward momentum in the price of Bitcoin, that could be covered within weeks, if not even days. Cryptocurrencies are once again going through what we in the trade refer to as a “melt up”. Everyone appears to be getting rich without effort and the question on the lips of those who aren’t is: “Is it too late to jump on?”.
I have none. I sort of wish I did but the rule that one should never invest in something one does not understand has over the years stood me in good stead. Despite having watched the peaks and troughs in Bitcoin, I still don’t really quite get it. What is different this time is that the big price rally is not being driven by a bunch of geeks in shorts and t-shirts with weird haircuts sitting in their garret making a living out of what to the rest of us looked like one huge computer game.
Those who have tripped over the movie Dumb Money starring Paul Dano which tells the story of the GameStop bubble will have gained a little insight into the way in which off-market markets work. The backdrop to the crypto bubble of 2022 will in many respects have looked very similar. But since the SEC, the US regulator, approved the distribution of bitcoin ETFs to the general public, the demographic of owners has shifted. Mom and Pop can now quite legitimately – not that it was ever illegitimate – through their high street broker buy into Bitcoin. They no longer need to ask the grandchildren to help them set up a wallet with a company they have never heard of or directly carry the risk of that account being hacked and their savings being plundered. It’s now all beautifully above the blanket and their ETF can be bought and sold in good old greenbacks. In other words, they can buy and sell Bitcoin without ever having to deal in it.
With some regularity, I talk to one of my dearest friends, now active on the other side of the pond, who after a distinguished career in the City took the plunge into the crypto world where he has on paper at least accumulated a considerable fortune. He cannot on his own cash out although were all the partners in the business to agree to sell, were a bidder to appear at the door with a bundle of dollar bills in his pocket, he’d be laughing all the way to the bank.
One of the features of many of the companies in the crypto world is that they were created by very bright and imaginative coders who might be tripping over their own IQ but who have no clue whatsoever how to run a business. Let’s face it, the Bill Gateses and Mark Zuckerbergs of this world did not get where they are because they’re the best techies but because they are the shrewdest businesspeople amongst the techies. They did what car companies used to be accused of which was to buy up all the challenging start-ups around them, plunder the technology and close down the rest. Gates might now be in the process of being beatified for having given away most of his over one hundred billion dollar fortune but rest assured, he didn’t acquire all that dosh by being a nice guy.
Sometimes they get it wrong. The news that broke overnight that Apple Inc is ditching its longstanding effort to produce a self-driving EV is a case in point. I don’t know precisely how many billions Apple has poured into this project. I’m not sure too many people at Apple will either but the board has called time on what must be quite a fiasco. Apple has very deep pockets and for the sake of image could easily have carried on development on an increasingly smaller scale until it would have eventually withered away. But no, it has blown up the project with a single charge which cannot but point towards Tim Cook having decided that it was all an exercise in futility and that a painful end is better than unending pain. Maybe there is also an element of Cook appreciating that the principal competition in the EV space no longer comes from Tesla but from China’s BYD and, as it currently stands, that is a fight he cannot win. Either way, creative resources are now required in the AI space so there will be a major internal redeployment.
So, my transatlantic buddy continually accuses me of dissing cryptos. I don’t think I do so. I simply cannot get past the observation that cryptocurrencies primarily remain a solution in search of a problem. The rapid rise in generative AI demonstrates what happens when that is not the case. But Bitcoin has been around for a goodly while now, has gone up and down, has made some people rich while impoverishing others, but it has still not in any major way impacted the global economy. It has not replaced the greenback. It has not taken over the international payments system. It has promised many, many things but if looked at in the cold light of day it has – other than around the fringes – achieved precious little. Forty years at the coal face taught me that even the best looking deal, if it drags on for too long, will not happen.
Bitcoin cried “Revolution!” That revolution has not occurred, and we must seriously ask ourselves whether it is in its DNA to reinvent itself in order to become part of an evolution? If its intended challenge to the way in which we perceive money has not yet come to anything, will that suddenly change?
The world’s most desirable and inherently valuable car is probably the Ferrari 250 GTO. The 250 family is not small with the 250 Lusso, the 250 LM and the 250 GT SWB all being first cousins, but it is the GTO which is now probably worth north of US$ 75,000,000. What makes it especially valuable, however, is not that in 1963 it rewrote the rules of what a sports racer should be and do but that Ferrari only ever built 39 examples. The value is in the scarcity. Personally, I’d rather own and drive a 250 GT SWB. They made 167 of those and the price is not one tenth of that of a GTO.
The algorithm behind Bitcoin limits it to a total of around 21 million coins ever being created or mined. Of those, 19.1 million are now in existence whereby the actual number is likely a lot lower as many will have been lost in cyberspace by people who once owned them but lost their passwords and will therefore never be able to access them. Think of a Spanish galleon loaded with gold having sunk in the Marianas trench. There but not there. The approval of the Bitcoin ETFs has increased demand amongst the chattering classes for an asset where supply remains more or less static. Whether a Ferrari 250 GTO is actually worth US$ 75 million is debatable while the price tag isn’t. FOMO, fear of missing out, has now got a firm grip on the price of Bitcoin while its utility remains pretty much the same as it was when the price was at either US$ 67,000 or at US$ 20,000.
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