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article imageOp-Ed: A deadly digital transformation? Cryptocurrencies on the rampage

By Paul Wallis     Sep 12, 2017 in Business
Sydney - Since Bitcoin started, everyone, meaning absolutely everyone, has been trying to get in on the action. Speculators are plowing money in to cryptocurrency startups, and the monster is getting bigger.
The new wave of ICOs (Initial Coin Offerings) around the world has basically followed suit from Bitcoin. Millions, probably billions in fact, are being thrown at anything which can be called The Next Bitcoin. It’s a disaster in progress.
Bitcoin is under siege. The value is now an almost hallucinatory 2000% plus from its startup value. There are rumors that China will ban Bitcoin trade, backed up by China’s historically tough, if not globally popular, currency policies.
The Chinese Bitcoin exchanges may or may not even be getting shut down right now, depending on which source you believe. The use of the word “disorder” in reports of official comments sounds authentic. Rather worse is the fact that ICOs have also been called “illegal”, which could do serious damage to Bitcoin holders.
The pundits (Remember them? The people who didn’t predict Bitcoin) have been saying Bitcoin is a bubble, long after it obviously became one. Meanwhile, it kept going up while they made these predictions. Prophecies of a massive crash are a dime a dozen, and may well come true as the horrendously valued Bitcoin has so far to fall.
The US, meanwhile, has been highly skeptical of cryptocurrencies as possible means of funding terrorism and organized crime. The slow but potentially fatal move for Bitcoin could be to follow China in some form, which will trash it completely. The EU may respond to the plague of ICOs in much the same way, by using the Euro, which is well positioned to create an “augmented” cryptocurrency directly linked to an existing currency.
(Ironically, China may introduce an official cryptocurrency, a fully digital Chinese coin under strict control.)
Bitcoin, however, isn’t even the problem any more. The rise of new cryptocurrencies means inevitable losses for many investors. Not all cryptocurrencies can be equal. Some will get financial backing. Some will get too little financial backing, and fail.
How many cryptocurrencies can the market take?
This wave of startups is Buy A Bubble, incarnate. It’s doomed to fail to a very large degree. Any number of cryptocurrencies can start, and like most startups, hit a solid wall of indifference and lack of support. Speculators are risk takers, and they make big bets. Most people, however, particularly those managing trillions of dollars, are risk averse. If the big funds and hedge funds won’t play, these cryptocurrencies simply can’t work.
The less obvious problem is that all this money, fluttering like moths to the flames of the financial sector, could be invested elsewhere, with less risk. That, however, doesn’t mean that lots of money will slosh around like bath water with an elephant getting in to the bath. Some liquidity must be lost, and if Archimedes was right, it will be in direct proportion to the amount of solid material put in to the new cryptocurrencies in liquidity terms.
That in turn means hedging, futures, stock markets, commodities, and everything else will be moving money in and out. They’ll be dodging risk and taking opportunities caused by capital trying to find a home for itself. This is “disruption”, all right, but the sort where a lot of people in markets are likely to take major hits.
It’s simply not a good idea to turn every damn acronym into a currency and expect nothing will go wrong. There’s only so much blue sky in the markets at any given moment, and it’s not unlimited. Let’s wait to go nuts, eh?
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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