2020: the year of bitcoin! again.
The eagle-eyed amongst you will have noted that exactly one year ago I posted an article entitled ‘2019: The Year of Bitcoin. Again’ and several of you have asked how I fared with that particular prediction. Well, taking into account the price was then about £2,600 and, having peaked at a smidgen under £10,000 in July, it’s now at £6,800, I guess I was pretty much on the money. For once. Ethereum, my own personal coin of choice hasn’t fared quite as well (£80 to £130 with a high of £250) and is heading for a further period of uncertainty as a new mining algorithm, ProgPOW, is due to be launched over the next six months and the discussion over a switch away from mining to a ‘Proof of Stake’ continues to gain momentum.
At this point in time just over 18m Bitcoins have been successfully brought into existence, leaving less than 3m to be ‘mined’. If this makes you consider the basic laws of ‘Supply & Demand’ and the subsequent impact this could have on the price then I’d be inclined to agree. However, you’d be wrong to think that the full number of 21m will be available anytime soon. The reward for successfully mining a block of coins currently stands at 12.5 and it’s imminently going to be halved to 6.25, and will do so again approximately every four years, which means the final coin will be mined some time during 2140! And just to tantalise you further, several prominent Bitcoin enthusiasts have created a stock-to-flow model (think supply & demand again) which accurately tracks Bitcoin’s turbulent rise (and fall, rise, fall, rise, fall and rise) from 2010 to date, and extrapolates it to predict an incredible £40,000/coin within twelve months of the ‘halving’.
Further popular thought concedes that as the mining reward falls, and it becomes more difficult to identify new Bitcoins, the reward mechanism will increasingly move to an actual fee award, based upon traditional currencies, paid for the verification of commercial trading transactions of the coin. How the mining community feels about its transformation to a quasi digital Visa/Mastercard remains unclear!
Two events have happened in recent years that have too-early attempted to sound the death knell on cryptocurrencies: the supposed failure of Facebook’s Libra and the highly visible collapse of OneCoin. I’ve commented on the equally ambitious and defiant Libra several times and you ignore it at your peril – http://carlbeetham.com/crypto-copy-cat/ and http://carlbeetham.com/bad-boy-bitcoin-on-the-back-foot/ A private company controlling its own currency and taking over tasks normally discharged by a nation’s bank has certainly spooked legislators and central bankers alike. Zuckerberg’s intention to reinvent money could yet prove vital in triggering significant, and long-overdue, reform of the largely corrupt global financial system. Ironically, Michael Lewis, author of The Big Short, was this week’s Desert Island Discs guest and he remains adamant that another financial crash, the likes of which we have never seen, remains just around the corner.
Which brings me on to OneCoin. Ah, OneCoin. Where exactly to begin?
Sounding more akin to an Austin Power baddie, Dr Ruja Ignatova (Alotta Fagina anyone?) was the high-flying financial guru who persuaded over a million people to ‘invest’ in excess of £4bn in the next Bitcoin. Only it didn’t exist. And the German-Bulgarian con artist went AWOL in late 2017 and hasn’t been seen since. By claiming that it was both simpler and safer to buy OneCoin (you didn’t even need a computer let alone a digital wallet) she cleverly pitched it as the future of international payments, especially for the ‘unbanked’, and funds simply flooded in.
OneCoin was sold using the age-old pyramid scam of multi-level marketing (MLM) last employed on a global scale by Bernie Madoff, who… er, made-off with £12bn a decade ago. MLM operates by paying commissions to individuals who sell to the friends, their family and to their communities, who in turn do exactly the same. Ignatova recruited some of the world’s top MLM sellers and, as the coin’s reputation spread, many became rich. However, OneCoin’s price (43p in 2015 and £10 by 2017) was merely a number she invented from her Bulgarian office and there was no underlying technology behind it, no blockchain or mining verification and, most importantly, no exchange via which OneCoin could be traded. It was a scam, pure and simple, where MLM commissions kept the momentum high and allowed the founders to launder the money through a variety of PE investment funds and offshore bank accounts.
Being wise after the event is easy in OneCoin’s case but the ‘once-in-a-lifetime’ opportunity and ‘miss-it-at-your-peril’ warning has proved too tempting to people far wiser than I and the high-profile marketing (the UK office was based at the country’s most prestigious address, I Knightsbridge, and Tom Jones performed at her birthday party in London’s Victoria & Albert museum) succeeded in spades. Believe it or not, until very recently as much as £1m a week was still being received and processed at the Sofia HQ. There are many legitimate uses for genuine cryptocurrencies but every innovation creates scamming opportunities.
So, the $64,000 question is should you buy some Bitcoin? No idea and it’s your shout as it’s your money but I would advise you to first and foremost do your homework, accept the risk involved, invest only an amount you can afford to lose, don’t put all your eggs in one basket (or OneCoin’s for that matter!), buy when the price suits your pocket and, like the Willy Wonka’s proverbial golden ticket, you have to be in it to win it. What price ‘2021: The year of Bitcoin. Again.’?