RPT-COLUMN-Bitcoin’s volatility keeps it in ‘Never Land’: Mike Dolan
(Repeats unchanged. The author is editor-in-chief for finance and markets at Reuters News. All opinions expressed here are his own)
LONDON, May 21 (Reuters) – Bitcoin’s mad rush this week is far from unusual for the largest crypto token – but the roller coaster is also its inherent contradiction.
Speculators have been betting for years that bitcoin will become a stateless digital currency that is widely used for online retailing and payments are largely responsible for its parabolic price hikes. But they also sow the kind of blinding volatility that makes this ambition almost untenable.
Bitcoin’s 30% drop on Tuesday after another Chinese government crackdown is not unique. Daily moves of over 20% have been frequent over the past 6 years. At nearly 4.5%, the median daily price fluctuations during this period are more than 6 times those of the main transatlantic euro / dollar exchange rate.
And while some online retailers may accept bitcoin as a form of payment for goods valued in dollars, few could handle the potential accounting chaos of bitcoin sticker pricing if its value can regularly change by one-fifth to one-fifth. a few hours.
The flip side is true for buyers. If you think the price of bitcoin continues to rise over time – much like the last quadrupling in the past 12 months – then why are you giving up those gains by paying anything with Bitcoin today?
And so, if this role of transaction currency or stable store of value remains elusive, it is essentially a game of hoarding a finite number of tokens by small groups of people that regularly involves wild fluctuations and illiquid every time regulators leap, supporters tweet, or gamers cash in.
As always, arguments over the pros and cons of crypto tokens divide believers and non-believers – blind faith versus instant dismissal, encouragement versus contempt.
This week, Deutsche Bank compared Bitcoin belief structures to the so-called “Tinkerbell effect” – a theory taken from children’s book character Peter Pan’s claim that the fairy only exists because children believe.
“In other words, the value of Bitcoin is based entirely on wishful thinking,” wrote Deutsche analyst Marion Laboure.
Laboure estimates that less than 30% of bitcoin transactions are currently related to payments – the rest is trading, speculation, investing or related activities.
And it considers its liquidity as an investment asset to be low. With around 28 million bitcoins changing hands last year, that’s 150% of all in circulation – almost half the equivalent for Apple stocks.
TINKERBELL, ARK AND MUSK
With a market capitalization still around $ 1 trillion, governments cannot ignore bitcoin, even as central banks continue to dismiss its wider systemic importance. They can even take credit for the fact that its emergence over the past decade has spurred so-called ‘fintech’ innovation as they gradually develop their own central bank digital currencies over the coming years.
But Deutsche Labore believes more crackdowns will come – and most likely whenever bitcoin even looks like it is competing with their currencies for payment.
“It is not surprising that governments are not inclined to abandon their monetary monopolies. Throughout history, governments regulate first, then take ownership. “
If so, what’s the end of all the speculation and hoarding – which further limits the supply of bitcoin and drives up the price? Is it just “pass the parcel” while the music continues to play? Or is it people with the money to bark down for quick wins and strategically negotiate by timing the entries and exits?
Some argue that there is a real demand for crypto transfers in the $ 500 billion a year in global remittances, as migrant workers often need to send money back to poorer countries with strict formal controls. foreign exchange.
Others claim crypto privacy features are attracting demand from criminals, according to this month’s ransomeware hack on the Colonial Pipeline. But that will only accelerate further regulation. The investment arguments, beyond simple set-up, range from a lack of ‘correlation’ with other assets to a potential role as a hedge against inflation – a strange claim given that its latest reversal comes amid all the fears of post-pandemic inflation.
Powerful donors also have their say, but are increasingly irregular.
Tesla billionaire Elon Musk pushed the price up earlier this year by saying Tesla would accept bitcoin as payment for its dollar-priced electric vehicle and add bitcoin to the company’s balance sheet – to turn back the clock. last week by warning against excessive energy consumption in bitcoin mining.
With no obvious justification, tech investor star Cathie Wood, Ark Invest, claimed this week that bitcoin would rise another tenfold after recording a 50% loss in one month.
At the $ 500,000 level it postulates, bitcoin’s market capitalization would then be $ 10 trillion – or one-third of the entire M1 money supply of G20 economies.
Jon Danielsson of the London School of Economics believes that due to the concentration of Bitcoin ownership, this type of move would create new multi-billionaires – even the first billionaire. And that would vastly exaggerate existing wealth biases as the gap between Bitcoin’s haves and have-nots reaches intolerable levels, mocking claims of crypto’s ‘democratization’.
As a result, he believes that the coexistence of bitcoin and so-called fiat currencies is impossible. It’s all or nothing.
If it replaced all the G20 currencies in circulation, each bitcoin would cost $ 1.5 million.
Reality or fiction?
“Bitcoin is a bubble,” Danielsson concludes. “It makes sense to ride in the bubble for as long as possible – you just have to get out on time.”
by Mike Dolan, Twitter: @reutersMikeD. Volatility chart by Aaron Jude Saldana. Edited by Jane Merriman