Watch out for some worrying tales from the crypto, says MR MONEY MAKER Justin Urquhart Stewart
Fan or scam?
‘By the pricking of my thumbs, something wicked this way comes.’ This worrying quote is from one of Shakespeare’s witches in the Scottish play, as she and her fellow sirens interpret the prophecy for Macbeth and their own future.
Prophecies are always difficult and unreliable, but for me the birth of the cryptocurrency fad has opened up an extremely dangerous investment structure into which many innocent and gullible investors have been drawn.
There have of course been those who have been lucky enough to have profited out of these computer-generated tokens as they have see-sawed in their value. They have become a fashion fad and are the subject of regular questions from investors. As ever, it is after the huge leaps in value that others are attracted in, only to find that the price has slumped back again.
Money for nothing: There have of course been those who have been lucky enough to have profited out of these computer-generated tokens
We have even had a sovereign nation, El Salvador, announcing that bitcoin would become its national currency instead of the US dollar. This is madness, as you could find the value of your local assets dependent upon the unruly trading of an unregulated and unstructured token.
A limited supply
These tokens have to be ‘mined’ through the use of computer algorithms. Their supply is going to be extremely limited and the power necessary is astonishing.
According to Digiconomist, as of July 15, a single bitcoin block requires 1,721.96 kilowatt-hours, or nearly $26,000 (£19,318).
Put it all together and bitcoin requires as much power as used by the country of Sweden each year.
The outlook for cryptos
For the real value, we must look at the underlying structure of these tokens.
They run on a structure – blockchain – which is best described as a spider’s web. If any part of the web is touched, the rest of the web or network will be aware of it. In effect it makes the recording and control of the system locked in. So we are now seeing central banks, including the Bank of England, looking to see if they should run their own cryptocurrency.
This could allow the Bank to have total control and oversight of all trading ownership and transfer of their own cryptocurrency. This would then prevent money laundering and control any potential illegal action involving their own assets within the spider’s web.
What should we do?
In my view cryptocurrencies should not form part of a portfolio as they are as yet not properly regulated and their value is far too erratic.
However if you wish to have a bet then this is a financial version of a day at the races – except it comes without the picnic and champagne.
For proper investment, we should wait until this market of computer-generated tokens matures into a more reliable asset.
Justin Urquhart Stewart co-founded fund manager 7IM and is chairman of investment platform Regionally.