By coincidence, I was involved in a conversation about bitcoin at my local coffee shop at the weekend, trying to explain what it physically is. I failed. Yes, I know what I’ve read:

Bitcoin (BTC) is a cryptocurrency, a virtual currency designed to act as money and a form of payment outside the control of any one person, group, or entity, thus removing the need for third-party involvement in financial transactions. It is rewarded to blockchain miners for verifying transactions and can be purchased on several exchanges.

Judging by the facial expressions on the faces of my fellow coffee drinkers, they didn’t quite get it either. And when I said they had just been approved in ETF’s, the phrase ‘mind blown’ is the only way to describe their reaction. No surprise then to see this post from Rob Karpati expressing his concern about what many think of as the Emporers New Clothes. Read on….

This good article says it all. Crypto’s are vaporware, without tangible use cases beyond money laundering, which is great for crooks, terrorists, ransomware scam practitioners.

Crypto’s are a case of ideology trumping sound investment sense, attractive to some because they are inherently transnational and unregulated.

With SEC approval of ETF’s, caveat emptor is all I can say to most investors, who may take on massive unexpected risk given incredible volatility and scam-driven context in the sector.

At the end of the day, do crypto’s:

🏹 increase volatility in the economy given their very volatile nature?
🏹 increase systemic inflation, almost like printing money as lines of code enable laundering?
🏹 increase value for crooks given how great they are for money laundering?
🏹 increase risk for the average investor?
🏹 increase energy consumption given that mining crypto’s requires massive energy?

It seems that ‘yes’ is the answer to all these questions, it’s not clear to me at least whether there are any compensating pro’s that justify these cons.

This is the development he’s referring to:

Bitcoin has just been legitimized in the U.S. Cue the ransomware criminals

One of the world’s least useful and most dangerous financial assets has come roaring out of its “crypto winter," David Olive writes.

By David OliveStar Business Columnist

Saturday, January 20, 2024

Samara Cohen, chief investment officer of ETF and Index Investments at Blackrock, centre, rings the opening bell as bitcoin spot ETF's are launched on the Nasdaq Exchange on Jan. 11 in New York City.

Stephanie Keith / Getty images

Bitcoin is back.

Sad to say, one of the world’s least useful and most dangerous financial assets has come roaring out of its “crypto winter.”

Bitcoin, largest of the cryptocurrencies, has come close to tripling in value in the short space of a year. That surge comes on the heels of bitcoin’s 62 per cent plunge in 2022.

ARTICLE CONTINUES BELOW

And bitcoin has just been legitimized in the U.S. by America’s top securities regulator.

On Jan. 10, the U.S. Securities and Exchange Commission (SEC) approved several applications to launch exchange traded funds (ETFs) tied to the spot price of bitcoin or that hold bitcoin itself.

That makes bitcoin easily available to everyday American retail investors for the first time.

A small number of bitcoin ETFs have been available in Canada since 2021 and in Germany since 2020.

Anticipation of the landmark decision by the SEC largely accounts for bitcoin’s astonishing comeback, given the immense size of the U.S. market for financial products.

Bitcoin has also been in short supply, pushing up its price, due to all the bitcoin tied up in bankruptcy proceedings after the failure of several crypto firms, including FTX, Celsius and Three Arrow Capital.

At a current price of about $43,000 (U.S.), bitcoin has soared by roughly 170 per cent from its most recent low in December 2022.

The SEC was forced to approve bitcoin ETFs by U.S. court decisions that said the SEC was acting arbitrarily in refusing to do so.

SEC chair Gary Gensler still warns against cryptocurrencies.

“Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto,” Gensler said the day his agency approved the bitcoin ETFs.

Experts who loath bitcoin were soon heard from.

Among them is Dennis Kelleher, CEO of the U.S. financial watchdog Better Markets.

The SEC, Kelleher said, had just “enable(d) the mass marketing of a known worthless, volatile and fraud-filled product to Main Street Americans.”

We can now expect more money to flow into bitcoin. And for much of that to be held by everyday people untutored in an opaque and illiquid financial product.

About 30 per cent of all bitcoin, valued at an estimated $1 trillion, is held by just 10,000 people worldwide. That makes it easier to manipulate than traditional stores of value.

Some of Wall Street’s biggest firms, including Fidelity Investments, BlackRock and Invesco have been quick to offer bitcoin ETFs.

Those household-name firms have credibility with Main Street investors, and they have enormous marketing budgets to tout the virtues of their bitcoin ETFs.

Banking giant Standard Chartered forecasts that the new bitcoin ETFs will attract an additional $50 billion to $100 billion into cybercurrencies this year.

Standard Chartered also forecasts a bitcoin price of as much as $200,000 by the end of next year.

That seems a bit wild-eyed — bitcoin’s all-time high is $65,000 in November 2021 — but some crypto enthusiasts see the price shooting even higher.

Never mind that we don’t know when liquidators of the failed crypto firms will dump their crypto on the market, depressing the price.

The financial cyberworld has been a cult of true believers since bitcoin was first launched in 2009. They are unfazed by bitcoin’s record of plummeting or spiking in price by more than 70 per cent three times since 2020 alone.

As with gold, which is also practically useless in the hands of everyday people, crypto is cherished by those who believe in a coming dystopia.

They see an eventual collapse in “hard” assets like the Canadian dollar and U.S. Treasuries, which they dismiss as artificial “fiat” stores of value created by governments.

Actually, it’s cryptos that are fake. They are strings of computer code generated by computer server farms run by unregulated crypto czars and are vulnerable to manipulation, hacking, fraud and theft.

And unlike gold, cryptos have no intrinsic value.

Oddly enough, bitcoin recovered in a year that saw the downfall of Changpeng Zhao and Sam Bankman-Fried, founders of the world’s biggest and second-largest crypto exchanges, Binance and FTX.

They each await sentencing after being convicted of money laundering and fraud, respectively.

Their fate seemed only to add to the economic and geopolitical uncertainty that drives speculation in gold and crypto.

What’s next for bitcoin, ethereum (ether) and other cryptocurrencies that have soared in value?

The bitcoin price would seem poised to keep rising.

But in the short term, bitcoin is “fully priced,” already reflecting the factors in its favour. And, as noted, bankruptcy courts will eventually flood the market with crypto.

What we can be sure of is that crypto will continue to be the financial instrument of choice for money launderers, terrorists and the ransomware criminals who attack Canada every day, usually demanding payment in crypto.

And we can be certain that crypto, like cockroaches, will continue to be indestructible and ubiquitous.

David Olive is a Toronto-based business columnist for the Star.

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