Retrospective trading is always something that sticks in the craw, but when one is on the record as having “recommended” a particular instrument in the pages of a respected financial publication, then it sometimes does pay to revisit that recommendation – if only for the sake of personal amusement.
Almost four years ago, I recommended in this column buying bitcoin when it was trading at a miniscule US$630 a coin. Yes, we all know what has happened in the interim and I won’t comment on whether or not I put my money where my mouth was at the time. (I’m still writing this column, so maybe there’s your clue.)
I actually recommended that a company in Asia do a bitcoin bond, with a callable structure – it would have been best done in dual-currency format, but I neglected to make that explicit – and park the proceeds unhedged (well, there was no suitable hedge back then, and in fact there still isn’t).
No one took me up on that offer, but I still reckon it would have flown.
That might well have been one of the earliest calls to “institutionalise” that currency, although in its wake much has occurred in both the secondary and primary markets related to bitcoin and other attendant cryptocurrencies.
The “initial coin offering” in both bitcoin and other similar units of exchange – including such sexy items as Ethereum, Litecoin and Ripple – has become a staple for those who are true believers in the future of cryptocurrencies. Some have performed, although under the taint of naysayers who regard these offerings as little more than glorified Ponzi schemes.
THERE HAVE BEEN some notable examples involving companies attempting to leverage the ongoing – if recently subdued – mania for cryptocurrencies, including a frenzied US$300m ICO for technology company Gnosis last year, and criminal proceedings in India related to an ICO for a company called OneCoin.
Such situations are inevitable in the context of a mania which seems already to be subsiding, with winners and losers on both sides of the sellside and buyside divide.
But the real question is just what place cryptocurrencies have within the global financial system.
During the stellar surge of bitcoin in the run-up to last Christmas – when the unit chalked up a print of US$19,800 per coin – I was of the opinion that the currency had some notable elements on its side.
For example, I thought of it as a sanction-busting instrument, one which could be mined using all the relevant technology by regimes such as North Korea and Iran to produce an exchangeable medium which would allow trade to flow more freely than the US desired under its edicts excluding those countries from the global trade system.
Then it was pointed out to me that the volume available to those countries for use in the international trade system – assuming the mining machines were numerous and working at full power grid-busting capacity – was so tiny relative to the amount required for meaningful trade, that the sanction-busting idea was an absurdity.
On the other hand, I wanted to contrast the massive price explosion seen in cryptocurrencies over the past six months-odd with the surge of stock prices seen during the doctcom bubble of the late 1990s.
I reasoned that the manic increase in single stocks during that period – such as a travel agency, which had suddenly put up a website and seen its stock surge by 5,000% – was another thing entirely from a cryptocurrency that could be used as a medium of exchange around the world.
PART OF ME still harbours the notion that the cryptocurrency bubble – for it contains every element that characterises a bubble – might have more legs than previous bubbles, whether for Dutch tulips, the South Sea Company, or whatever else.
In this, I’m thinking of the underlying technology, principally blockchain, which I believe will be as big a game-changer for the global economy as the internet.
That technology need not necessarily be based on cryptocurrencies, but I suspect that it points naturally to cryptocurrency for settlement, simply based on the notion that third-party verification providers are unnecessary within the blockchain.
My sense is that cryptocurrency is an essential aspect of the march of this new technology and that the markets are working out which ones are going to feature as a core aspect. That points to a bounce back from the current slough in prices.
But as to which currency will become essential? That, I don’t know. If I were, however, to be judged on the basis of an initial pricing call in this column, I would stick to the oldest and most famous one.
