Back in November, when the world had more peace than it has now, we sounded a warning. Most of us, we said, wouldn’t recognise a cryptocurrency if we tripped over one on the streets of Dublin or Cork, much less know what to do with a non-fungible token, or where to find a blockchain.
Equally disorientating, we commented, are the market capitalisations which apply to some of the main providers. Bitcoin (BTC), the original cryptocurrency, is said to be worth 1.7 trillion US dollars. Five years ago a single Bitcoin sold at $500. Now it is priced at $62,000, a growth of 12,300%. By chance, in evidence given to a court hearing in Cork last week, we heard that five bitcoins, which had been purchased at €109 each, had reached an individual value of €62,000.
In this rapidly developing market there are opportunities for gains and losses. And, for now, people who bought at the top are losing in what has been described as a “Lehman moment”, the domino effect when values start to crash.
There are very sound reasons to be cautious. Cheap money is coming to an end as interest rates rise. The cost of living is moving north so rapidly that people cannot keep up with it. Energy costs are out of control. Recession is in the air. As they sing in the musical Cabaret, when hunger comes to rap, rat-a-tat rat-a-tat at the window, see how love flies out the door.
Cryptocurrencies are risky assets, maybe worth a punt when times are good, but vulnerable when they tighten. They are outside the financial mainstream, and only have value when everyone agrees what that value is. And now there is a problem.
The value of cryptocurrencies has crashed by more than half in the space of just six months. In the last month alone, $1 trillion of value has vanished. The UK’s Financial Conduct Authority has already said: “If you buy crypto assets you should be prepared to lose all the money you invest.”
The confluence of finance and technology companies into new entities which are not banks, but which possess the power to shock the economy in ways that many people will not understand, is a tangible danger which is under-debated in the Republic.
Back in November we pointed out that, having endured the bank-led crash of 2007-8; the pandemic and the various cyber-attacks which have damaged the country there is not an inexhaustible supply of patience for dealing with future challenges generated, but not independently scrutinised, from the fintech sector.
Last week’s performance was in the nature of an early warning. It won’t be the last, and it shouldn’t be ignored. Surveys in April showed that 60% of Irish people were curious about cryptocurrency with 18% of a sample size of nearly 1,800 people either owning, or having previously been, owners.
You have to speculate to accumulate, or so the old saying goes. But with all the volatility in an unpredictable world, this is a moment for digital prudence.