InvestMacro

By George Prior 

High net worth (HNW) investors have not lost any confidence in cryptocurrencies, despite the dismal so-called crypto winter of 2022, as the robust first half of year continues for the market.

85% of HNW clients have considered, or currently already are, investing in cryptocurrencies such as Bitcoin so far in 2023, according to a survey carried out by deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organizations.

The poll’s findings were up from 82% of the organisation’s HNW clients with between £1m and £5m of investable assets who sought advice on cryptocurrencies throughout 2022, as a whole.

Nigel Green, chief executive and founder of deVere Group, comments: “The half year crypto poll reveals that, despite the crypto market delivering its worst performance since 2018 last year, 2023 has seen a remarkable turnaround for digital currencies.

“This sustained market bounce is quite incredible considering just how dark the 2022 crypto market was, with a string of serious headline-grabbing events triggering a domino effect of financial losses that led to a shattering of investor confidence in cryptocurrencies.

“Last year’s price drops also came as investors reduced their exposure to risk-on assets, including stocks and crypto, due to heightened concerns about inflation and slower economic growth.”

Amongst other incidents, in May 2022, the TerraUSD and Luna stablecoins crashed, taking billions of dollars of investor equity down with it. The market was further rattled by the bankruptcy of crypto exchange FTX in November, which also wiped out billions of investor money. Allegations of financial wrongdoing were tabled against the firm’s leaders, including the company’s founder Sam Bankman-Fried.

“It really was about as bad as it could’ve been for the crypto market last year. And 2023 has, so, far been characterised by the US Securities and Exchange Commission (SEC) ramping up oversight in the digital asset space.

“The fact, then, Bitcoin has gained 80% already in 2023, putting it on track for its best annual performance since 2020, and that Ethereum prices are also up 52% so far this year, is truly impressive.”

The deVere CEO notes: “Against this backdrop of the so-called ‘crypto winter’, and the macroeconomic headwinds, HNWs are consistently seeking advice from their financial advisors about including digital currencies into their portfolios, or increasing their exposure to them.”

He added that despite the surveyed group being “typically more conservative,” he believes the interest stems from Bitcoin’s core values of being “digital, global, and borderless.”

The deVere Group CEO also notes the cryptocurrency market is now experiencing “upside momentum due to global cooling inflation trends which will improve the outlook for risk-on assets.”

Wealthy individuals are not the only ones who have continued their crypto interest and holdings over the last year. Institutional investors, namely Wall Street giants are also forging ahead into the space.

Nigel Green concludes: “If HNWs are continuing to express such huge interest in crypto, as market conditions steadily improve, they’re going to be amongst the first to capitalise on the anticipated continued price rises of the major digital currencies.”

About:

deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients.  It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.

Source: Clive Maund  (7/4/23)

Technical Analyst Clive Maund takes a look at the current state of Bitcoin and Big Blockchain stocks to tell you where he believes it is all headed. 

By Edward Thomas Jones, Bangor University and Laurence Jones, Bangor University 

You can also read this article in Welsh.

The global cryptocurrency market has seen a number of recent setbacks: from the collapse of the Terra/Luna system in May 2022 to the failure of FTX, one of the largest crypto exchanges in the world.

Because of these factors, and other concerns over cryptocurrencies’ carbon emissions, these assets lost US$2 trillion in value (£1.5 trillion) in 2022.

But while cryptocurrencies get a lot of attention today, in some ways they are not a revolutionary concept. Hundreds of years ago, workers in Wales were often paid with alternative currencies instead of money.

These currencies were physical tokens that represented and were linked to the value of real money. Many cryptocurrencies work in a similar way, acting as digital tokens that represent a ledger of financial assets (this is known as “tokenisation”).

Digital currencies are also not reliant on any central authority, such as a government or bank, to uphold or maintain their network of exchange. Again, this is similar to how physical tokens were used by Welsh mining companies.

A halfpenny token issued by the Parys Mining Company of Anglesey in 1788. The hooded druid design was used for many years and was the first of hundreds of token designs.
BrandonBigheart/Wikimedia

Currency crisis

Towards the end of the 18th century the coinage of Britain was in a deplorable state due to the severe shortages of silver and copper coins. During the Industrial Revolution people migrated from the countryside into mining and manufacturing centres. But living in towns required money, and the ability to pay wages was impossible for businesses without small change.

With an influx of new workers using money, new shops were opened to meet demand, creating more jobs that required payment in coins. Although the production of counterfeit coins was illegal and punishable by death, it was not illegal to produce tokens with other designs which could be used instead of coins.

The first great era of token production during the first Industrial Revolution began in 1787 with the issue of the Parys Mining Company token. This company mined at Parys Mountain on the Welsh island of Anglesey. It briefly produced more copper than any other mine in the world during the Industrial Revolution.

It also used the high-quality ore from its mine to produce tokens which could be exchanged for official coin at full value at any one of its shops or offices. This made the Parys Mining Company the first company in the world to issue tokens. These were described as the “premier tokens” of the 18th century by that era’s coin experts.

Soon, practically every town in Britain was producing its own tokens. This was driven in part by a shortage of government coinage and improvements in coin manufacturing by Matthew Boulton’s Soho Mint in Birmingham, who also turned his hand to tokens.

By the turn of the 19th century, the total supply and fast circulation of tokens, foreign coins and other substitutes probably exceeded those of the official coin of the country.

The process of tokenisation was subsequently seen in other countries, in particular the United States. Mining and logging camps in the 19th century US were typically owned and operated by a single company, often in remote locations with poor access to cash.

A Parys penny produced by the Parys Mining Company. Obscurasky/Wikimedia

These companies would often pay their workers in “scrip”, or tokens. The workers, given the limited places they could spend scrips, had little choice but to purchase goods at company-owned stores. By placing large mark ups on goods, the company could increase their profits and enforce employee loyalty.

While the production of tokens by the Parys Mining Company were spurred on by the first Industrial Revolution, the adoption and popularity of Bitcoin and other cryptocurrencies has been hastened by the fourth Industrial Revolution.

Although they are more than 200 years apart, the history of these tokens have important lessons for today’s cryptocurrencies. First, for cryptocurrencies to succeed there needs to be various ways for individuals to accumulate the crypto/tokens, plus a demand and use for the crypto that means it holds its value, and trusted environments where exchange for goods and services can take place.

And second, for cryptocurrencies to be successful and sustainable in the long term they must uphold their original purpose of having an ecosystem that remains independent of a single company or government. Efforts to lock cryptocurrencies to a single organisation do not look positive, for example Facebook’s failed attempt to launch a cryptocurrency, announced in 2019.

The tokens of Welsh mining companies inherently failed when the closures of the mine or shops led to the removal of one or more of the three components of the ecosystem. And then people left with the tokens lost their money, a lesson for us today.

About the Author:

Edward Thomas Jones, Senior Lecturer in Economics / Director of the Institute of European Finance, Bangor University and Laurence Jones, Lecturer in Finance, Bangor University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By John Hawkins, University of Canberra 

Bitcoin boosters like to claim Bitcoin, and other cryptocurrencies, are becoming mainstream. There’s a good reason to want people to believe this.

The only way the average punter will profit from crypto is to sell it for more than they bought it. So it’s important to talk up the prospects to build a “fear of missing out”.

There are loose claims that a large proportion of the population – generally in the range of 10% to 20% – now hold crypto. Sometimes these numbers are based on counting crypto wallets, or on surveying wealthy people.

But the hard data on Bitcoin use shows it is rarely bought for the purpose it ostensibly exists: to buy things.

Little use for payments

The whole point of Bitcoin, as its creator “Satoshi Nakamoto” stated in the opening sentence of the 2008 white paper outlining the concept, was that:

A purely peer-to-peer version of electronic cash would allow online
payments to be sent directly from one party to another without going through a
financial institution.

The latest data demolishing this idea comes from Australia’s central bank.

Every three years the Reserve Bank of Australia surveys a representative sample of 1,000 adults about how they pay for things. As the following graph shows, cryptocurrency is making almost no impression as a payments instrument, being used by no more than 2% of adults.

Payment methods being used by Australians

By contrast more recent innovations, such as “buy now, pay later” services and PayID, are being used by around a third of consumers.

These findings confirm 2022 data from the US Federal Reserve, showing just 2% of the adult US population made a payment using a cryptocurrrency, and Sweden’s Riksbank, showing less than 1% of Swedes made payments using crypto.

The problem of price volatility

One reason for this, and why prices for goods and services are virtually never expressed in crypto, is that most fluctuate wildly in value. A shop or cafe with price labels or a blackboard list of their prices set in Bitcoin could be having to change them every hour.

The following graph from the Bank of International Settlements shows changes in the exchange rate of ten major cryptocurrencies against the US dollar, compared with the Euro and Japan’s Yen, over the past five years. Such volatility negates cryptocurrency’s value as a currency.

Cryptocurrency’s volatile ways

There have been attempts to solve this problem with so-called “stablecoins”. These promise to maintain steady value (usually against the US dollar).

But the spectacular collapse of one of these ventures, Terra, once one of the largest cryptocurrencies, showed the vulnerability of their mechanisms. Even a company with the enormous resources of Facebook owner Meta has given up on its stablecoin venture, Libra/Diem.

This helps explain the failed experiments with making Bitcoin legal tender in the two countries that have tried it: El Salvador and the Central African Republic. The Central African Republic has already revoked Bitcoin’s status. In El Salvador only a fifth of firms accept Bitcoin, despite the law saying they must, and only 5% of sales are paid in it.

Storing value, hedging against inflation

If Bitcoin’s isn’t used for payments, what use does it have?

The major attraction – one endorsed by mainstream financial publications – is as a store of value, particularly in times of inflation, because Bitcoin has a hard cap on the number of coins that will ever be “mined”.

As Forbes writers argued a few weeks ago:

In terms of quantity, there are only 21 million Bitcoins released as specified by the ASCII computer file. Therefore, because of an increase in demand, the value will rise which might keep up with the market and prevent inflation in the long run.

The only problem with this argument is recent history. Over the course of 2022 the purchasing power of major currencies (US, the euro and the pound) dropped by about 7-10%. The purchasing power of a Bitcoin dropped by about 65%.

Speculation or gambling?

Bitcoin’s price has always been volatile, and always will be. If its price were to stabilise somehow, those holding it as a speculative punt would soon sell it, which would drive down the price.

But most people buying Bitcoin essentially as a speculative token, hoping its price will go up, are likely to be disappointed. A BIS study has found the majority of Bitcoin buyers globally between August 2015 and December 2022 have made losses.

The “market value” of all cryptocurrencies peaked at US$3 trillion in November 2021. It is now about US$1 trillion.

Bitcoins’s highest price in 2021 was about US$60,000; in 2022 US$40,000 and so far in 2023 only US$30,000. Google searches show that public interest in Bitcoin also peaked in 2021. In the US, the proportion of adults with internet access holding cryptocurrencies fell from 11% in 2021 to 8% in 2022.

UK government research published in 2022 found that 52% of British crypto holders owned it as a “fun investment”, which sounds like a euphemism for gambling. Another 8% explicitly said it was for gambling.

The UK parliament’s Treasury Committee, a group of MPs who examine economics and financial issues, has strongly recommended regulating cryptocurrency as form of gambling rather than as a financial product. They argue that continuing to treat “unbacked crypto assets as a financial service will create a ‘halo’ effect that leads consumers to believe that this activity is safer than it is, or protected when it is not”.

Whatever the merits of this proposal, the UK committtee’s underlying point is solid. Buying crypto does have more in common with gambling than investing. Proceed at your own risk, and and don’t “invest” what you can’t afford to lose.

About the Author:

John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.