At the Sasfin Beyond Global Wealth briefing in Cape Town last week, global chief economist at UBS Wealth Management, Paul Donovan didn’t have many nice things to say about bitcoin.
The question posed to him was “should I invest in bitcoin?”
Anyone whose interest has been piqued at the recent surge in cryptocurrency popularity has either asked that question, or already decided to trade in cryptocurrencies – whether it be bitcoin, Ethereum, or any one of the many out there.
Donovan began his answer “by questioning its premise,” reports Moneyweb:
“Going to Monte Carlo would be a better option,” he said. “It would be more fun.”
His point was that there is really no such thing as ‘investing’ in bitcoin. If you’re buying bitcoin, what you’re doing is speculating.
This is true for all cryptocurrencies, he argued, because of one very important fact: they are not, and will never be actual currencies.
Donovan explained that any currency has to have two characteristics. The first? It must be accepted as a medium of exchange:
“No currency has intrinsic value,” he said. “Currencies are only worth something because you can get something useful in exchange for them. Someone else must be wiling to accept them in return for goods and services.”
While it’s true that bitcoin and a number of other cryptocurrencies are accepted by some online retailers and other businesses, Donavan argued that there is a good reason why they would never gain universal acceptance.
“The largest transaction in almost any economy is paying taxes,” he explained. “Tax revenue is typically between 30% to 50% of any economy. But governments don’t accept bitcoin and never will, because they know that being the monopoly provider of money is a huge economic advantage. They will never throw that away. As a result you will never have these cryptocurrencies accepted as a medium of exchange for the single biggest transaction in any economy.”
That might answer this question a little bit.
The second characteristic of any currency is that it must serve as a store of value:
“If you are going to use something as a medium of exchange you want to have a reasonable expectation that what you can buy with it today, you will still be able to buy with it tomorrow,” Donavan explained.
This is why when an economy experiences hyper inflation, the currency essentially loses its status. The Zimbabwe dollar is an obvious example.
That is the extreme, however, because in a normal, high-inflation environment there is still an expectation that there are ways you can invest your currency for it to retain its purchasing power. It therefore still serves as a store of value.
In the case of bitcoin, however, its value as measured by its price against the US dollar is extremely volatile.
“For example, in 48 hours this week, bitcoin fell 20% against the dollar,” Donavan pointed out.
So where does that leave you? Well, Donavan doesn’t not see the value in the tech behind it:
“The blockchain is essentially an efficient transmission mechanism,” he said. “UBS and other banks, even some central banks, have adopted blockchain technology that speeds up transactions between the major banks of the world. But you need to separate the underlying technology, which is rather dull, from bitcoin itself, which might be exciting, but it’s not an actual currency.”
But not all agree – after all, it’s not only bitcoin that is turning heads.
The cryptocurrency market as a whole has seen massive growth in 2017, explains MyBroadband.
Here are three to watch out for:
Monero is an open-source cryptocurrency which focuses on privacy and security. It is based on the CryptoNote protocol and allows for the implementation of anonymous transactions.
1 January 2017 – $13.79
11 September 2017 – $112.27
Litecoin is similar to Bitcoin in design and is intrinsically a payment network, although its blockchain is more decentralised and has progressive scaling solutions.
1 January 2017 – $4.33
11 September 2017 – $66.59
Decred is a multi-platform blockchain which offers increased accessibility and a hybrid consensus system, which includes proof-of-work and proof-of-state models.
1 January 2017 – $0.4837
11 September 2017 – $27.50
You can see more here.
If you are willing to play a few games, go for it, but if you’re looking for some “real” things to invest in, check out these suggestions.