One might have thought that the conviction of crypto fraudster Sam Bankman-Fried would make serious investors and regulators wary of the peculiar world of computer generated currencies.Bitcoin and most of the crypto world lacks the transparency and governance critical to investors.At a dinner this week, to launch James Wise’s book ‘Start-up Century’, several participants linked AI and crypto together and there was praise for Ethereum which ranks second to Bitcoin in market value.It doesn’t require tech know-how to understand that the speed of processing, unleashed by AI engineers, could eliminate some of the biggest criticism made of Bitcoin.
There is consensus that mining crypto consumes unacceptable levels of computing power and energy in a world where net zero carbon is the target.Doubtless block chain technology and distributed ledgers, as used by crypto, are a wonderful innovation.As smart as that sounds, it is a reminder for me of former Federal Reserve chairman Alan Greenspan’s prognosis before the financial crisis.
He argued that new-financial instruments, such as derivatives, made the financial world a safer place because it allowed risk to be distributed more widely across financial institutions and Continents.
Gamble: Bitcoin and most of the crypto world lacks the transparency and governance critical to investors When the market in US sub-prime mortgages collapsed, we learnt differently.The sliced and diced securities, based on this asset class, detonated like cluster bombs, destabilising Western capitalism.In spite of all the ‘known unknowns’ about crypto and the collapse of FTX, devotees of these pseudo-currencies remain unapologetic.The mystique is still there in spite of billions of dollars of savings wiped out by Bankman-Fried’s white collar swindle.It is disturbing that regulators, including the Financial Conduct Authority (FCA), want to bring crypto under their umbrella as an investment class.The FCA may have been encouraged after being badly bruised by financial hooliganism beyond its perimeter, such as the London Capital & Finance mini-bond scam and ‘Safe Hands’ funerals.
But there are some investments which simply do not pass the smell test.
Crypto is among them.This has not stopped cult investors, notably Cathie Wood of ARK Investment Management, from falling hook, line and sinker for the crypto myth.Wood has been brilliant in spotting tech trends.
Speaking to Bloomberg, she has predicted an era of falling prices (forget the impact of Middle Eastern and European wars) led by AI, robotics, blockchain and much else.In this environment she backs Bitcoin as ‘digital gold’.That is unless you want to wear your bullion or are a besieged economy such a Russia which piled up the yellow metal just in case.Long holders of Bitcoin have been on a roller coaster.In 2022 it collapsed by 64 per cent, badly hurt by the FTX farrago.Since then it has doubled in value to $35,000 but is a long way from Wood’s one million target.
I go with the valuation of Morgan Stanley’s James Gorman – ‘zero’.The case against treating crypto as a regular investment class is well made by ex-FCA chair Charles Randell.He notes there has been no proper assessment of the consumer harms.The Government is hooked on the genius of tech and AI and believes that by labelling crypto as a mainstream asset it could make the City the world’s trading hub.
How quickly it is forgotten how the red carpet for Russian oligarchs ended with the ‘London laundromat’, sanctions, exile for Kremlin-friendly investors, and suspension of listings for dozens of Moscow related entities on the London Stock Exchange.The FCA has made no secret of its disdain for crypto and warned against its use.But there been little public note of this week’s visit to London by the US Deputy Treasury Secretary Wally Adeyemo seeking support for closing down crypto currency transfers used to finance Hamas.The Tories would be better reinforcing the UK’s reputation for the highest quality professional standards.
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