Cryptocurrencies: “The report of my death was an exaggeration.”

This comment was later embellished by Mark Twain when a journalist mixed him up with a dying cousin. As far as I am aware, there was no further obituary notice until he passed. 

This is in stark contrast to the opinion writers of the FT and The Economist, who seem to write the obituary of cryptocurrencies on a weekly basis. Only they won’t die and remain in rude health despite a severe setback in 2022.

Why should this be the case?

The purchasing power of the US dollar has declined over 90% since it ceased to be exchangeable with gold in 1971. The US is the most indebted country in the world on an absolute basis. Like almost all fiat currencies, its value is not intrinsic. It doesn’t cost a dollar to print one. It’s a belief system that somehow we all believe it is worth a dollar of goods and services.

Crypto has no intrinsic value, but has a following and a daily, instant tradable value in the market. It can instantly move along an audited and transparent blockchain anywhere in the world

When I recently visited Florence, I estimated that the intrinsic value of the paintings and statues of Michelangelo and Donatello I saw would be about $100 if I valued the paint, wood and stone used on the 2nd hand market. Of course, they sell for a lot more, even though they have no intrinsic value. Why is that? 

In a very rigged market like art, the value may exist in the eyes of the beholder, but the price is mostly due to market manipulation. Art has all kinds of values but no intrinsic value. Like those who buy crypto, people think it has value today and may have value tomorrow. This is their belief system, and it certainly has more foundation than art valuations. Unlike the complex and closed world of Art auctions, the difference is that the value is found 24/7 on open markets.

Gold does have intrinsic value. It’s both a useful and a beautiful metal. It has enormous use in electronics; we wear it as jewellery to show off our wealth and stature. Central banks keep it as a form of reserve currency as its mining is finite. However, it’s very heavy and very expensive to move around. 

Crypto has no intrinsic value, but has a following and a daily, instant tradable value in the market. It can instantly move along an audited and transparent blockchain anywhere in the world. Bitcoin is mined, and that is limited and even reduced by what is called halving. In effect, it reduces supply at certain times, which is expected to drive higher prices. In this sense, using the term liquid gold when applied to Bitcoin is mostly true, apart from the intrinsic value, which, as we have shown, is itself a futile and self-defeating argument.

If digital currencies are a scam and have no value, as these arrogant scribblers suggest, then why is almost every government looking at creating its own digital currencies? Could it be that the markets and governments know something they don’t? Digital currencies, unlike fiat currencies, are easier to create and harder to pay the builder or drug dealer in cash as they all have a transparent and immutable trading record. 

The problem for the governments, and especially the US, is that the dollars they print are the world’s reserve currency, and the US wants that to continue, despite the best efforts of the Republicans to undermine the dollar by trying to prevent the sale of new Treasury bills to fund this debt. They don’t seem to get that any default could and probably would undermine trust in the safety of the greenback and shorten the inevitable long-term replacement of the dollar as the world’s reserve currency.

No other currency gets close to this role of the dollar as a global reserve currency. But cryptocurrencies could be the exception. That is why the SEC and its chair, Gary Gensler, the avowed adversary of crypto, have to slow it down and undermine it at every opportunity while getting ready to create their own digital currency.

No conflict there then!?  They should be worrying less about crypto and focusing on the possible imminent collapse of the secondary banks and other non-banking companies exposed to the US $1.5 trillion commercial property loan market that is due to roll over before 2025.

They rightly fear a cryptocurrency they don’t control, but the people do. Traded 24/7 is potentially the biggest non-state challenge to the US dollar that has ever existed. This view is not helped in their minds and mine by the libertarian, evangelical nonsense sprouted by the crypto believers who really believe they can use It to avoid regulation and control. They can’t, and they shouldn’t.

Those of us who have a more pragmatic and less messianic view of crypto would welcome a serious discussion between the users and regulators to make this happen. As Churchill said, “Jaw Jaw is better than War War.”  

In the interim, the market continues to grow and confound those who arrogantly think that the market Is wrong and they are right.

I asked a panel moderator why institutions don’t invest in crypto at an FT crypto conference I attended last year. 

I suggested that one of the reasons could be the almost ubiquitous negative view of the FT and The Economist toward crypto. My question received a round of applause from the audience, but the FT and The Economist apparently know better.

Ian Morley is chairman of Wentworth Hall Family Office