Though no fan of that acronym so beloved of millennials, FOMO, I must confess to having recently been a sufferer. Yes, I’ve been hit with a serious case of Fear Of Missing Out (until this week, at least). And it’s all because of bitcoin.
I started off as a die-hard critic of the peculiar cryptocurrency – partially, perhaps, because I struggled to decipher the associated lingo: ledger technology. Blockchain. Hashrate. Mining. My default approach was to ignore what sounded like deeply obscure sci-fi speak, and hope that no one quizzed me too aggressively on the matter.
But in the past two years, as bitcoin has morphed from being the exclusive domain of pallid computer geeks locked in basement bedrooms and surviving on a diet of yoghurt pots and muesli bars to something akin to a legitimate financial product – and one with a bumper return to boot – I slowly changed my attitude.
I wouldn’t say I developed a full-blown appetite to invest, but a keen interest certainly started budding as I examined my woeful ISA balance. I’d find myself envious of those who had taken the plunge – especially, of course, those who had done so in the heady days of circa January 2017. If those bitcoin bulls arguing for it to hit $100,000 ended up being right, though, even punters kicking themselves for entering at December’s peak of more than $19,000 may well be laughing in a few years’ time.
Just a few weeks ago, I came very close to buying on the dip. As bitcoin’s value slid below $18,000, then $14,000 and eventually $10,000, I even googled “best ways to buy bitcoin” several times, suspecting that I might be in for a bargain. But this week, as it lurched below $6,000 amid a global stock market exodus, I lost my nerve.
US Bitcoins draw interest of corporations
The overarching problem with bitcoin, to my mind, is that any talk of value – even “overvalue” or “undervalue” – is misplaced. Take shares. When analysts try to determine “fair value” of any given stock, they examine the financial metrics of a company, often using a complex set of rations that take into account earnings history and potential, assets on balance sheet and where shares have been trading. Impossible with bitcoin.
It will also never be a currency like the pound, dollar, Japan’s yen – or even the Burundian franc or Kazakhstani tenge. To qualify as that, it would have to be considered an at least relatively stable store of value and not something that can appreciate by 1,800 per cent in 12 months and then crash by half in just one. I’d sooner buy gold.
Arguably it would have to be backed by a central bank or authority that has the ability to print more bitcoin when demand surges, so that it doesn’t hurtle higher uncontrollably. At the very least it would have to win the support of regulators and trading would not (as it does now) face the prospect of being banned.
In the grand scheme of things, perhaps we should think of bitcoin as a flash-in-the-pan dot-com stock. The Washington Post in a blog last year described it as a “stock in a much, much worse version of PayPal”.
Bitcoin’s price has been propelled by wild speculation and little else. I’ve yet to be presented with a lucid reason why appreciation might in some form be justified.
Optimists have argued that the recent launch of bitcoin futures legitimise investing to a degree. But as Goldman Sachs analysts argue in a recent note: “Futures alone cannot address some of the key market structure barriers facing crypto investors, particularly at the institutional level.”
In fact, when asked whether today’s cryptocurrencies will even exist in five or 10 years’ time, Steve Strongin, the Wall Street bank’s head of global investment research, says that it’s “possible but not probable”. And why? “For the same reason that almost all of the first internet search engines are now defunct,” he says. “Something better replaced them.”
I know that bitcoin has been lucrative to many. A friend of a friend apparently just cashed in £200,000 thanks to savvy trades and exquisite timing. But I’m calling the party almost over. If something’s too good to be true, it probably is.
And for all those millennials suffering from a bad case of FOMO, perhaps now’s a good time to read up on that fabled dot-com bust. You might just learn a thing or two.