Crypto prices may swing wildly, but discussions about it should not

The robo-crypto bull statue is seen on the campus of the Miami Dade College Wolfson campus in Miami, Florida. Getty

When Bitcoin crossed $100,000 at the beginning of December, the event was described as a landmark moment that secured the asset’s reputation as the most successful investment product of the 21st century. What has happened since is worth reflecting on.

As the new year ticked over, Bitcoin’s price found itself at $95,000 on January 2 – its price is never settled at any point in time and is constantly restless – proving that it is a notoriously volatile asset, subject to swings of sentiment and mood.

For all the fanfare that greeted its seemingly inexorable rise, the casual observer would have missed the small stumble back into five-figure territory that followed, maybe because losses rarely get talked about with the same frequency or urgency as wins.

Mind you, virtually no one who already holds Bitcoin will care all that much. A year ago, the asset was valued at $44,000. If you bought-and-held back then, you’ll have done well. Better still if you’ve been dabbling in this space for longer. Almost five years ago, Bitcoin hit lows of $5,000 on the day the Covid-19 pandemic was declared. If you were an earlier adopter, you’re probably continuously congratulating yourself about your ability to make good decisions.

For transparency, I have a few hundred dollars of Bitcoin and Ethereum, the second-largest cryptocurrency, bought with a “fear of missing out” mindset a while ago and showing a paper profit. At the same time, I don’t see a persistent real-world use for crypto and have previously and erroneously predicted that a crypto crash was coming.

The arguments about use and utility of crypto are well-rehearsed, but are worth recapping, especially because profit can be a fickle friend and particularly as Bitcoin’s best attribute seems to be as a highly speculative instrument.

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  Former FTX chief executive Sam Bankman-Fried arrives on the day of his hearing at Manhattan federal court in New York. Reuters

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  Mr Bankman-Fried faces fraud charges over the collapse of the FTX cryptocurrency exchange. AP

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  Mr Bankman-Fried pleaded not guilty to charges that he cheated investors and looted customer deposits on his cryptocurrency trading platform. EPA

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  Mr Bankman-Fried is facing federal charges that he illegally used money from investors for personal gain. Reuters

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  The FTX Group has installed a new chief executive as Mr Bankman-Fried deals with his legal challenges. Reuters

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  Mr Bankman-Fried was extradited to the US from the Bahamas in December. AP

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  The FTX Group has filed for bankruptcy and has begun an 'orderly process to review and monetise assets for the benefit of all global stakeholders'. AFP

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  Mr Bankman-Fried was arrested on December 13, 2022, in the Bahamas after being served with several US criminal charges. AFP

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  Mr Bankman-Fried lost much of his wealth in the FTX collapse. AP

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  The US accuses Mr Bankman-Fried of committing one of the biggest financial frauds in history. Reuters

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  Mr Bankman-Fried, seen here in February 2021, has testified on Capitol Hill about cryptocurrency policy. AFP

There are historic cases of pump-and-dump profiteer schemes in the crypto world, as indeed there are in other areas of the investment landscape

Author Michael Lewis wrote in Going Infinite, his book of the collapse of Sam Bankman-Fried’s FTX empire, that “Bitcoin often gets explained but somehow never stays explained”, which captures the thick fog that can surround the sector.

Advocates say crypto assets will revolutionise the world by disrupting the conventions of finance and decentralising the banking world, although that would require more widespread understanding of its benefits to break through. In December, Philip Karageorgevitch called Bitcoin a “transformative force reshaping how we understand money” on these pages.

But even some ardent supporters of crypto don’t actually use these so-called coins to pay for items in their daily lives, like food orders or taxi fares, making the term cryptocurrency a near oxymoron.

Critics find no use for Bitcoin or alternative crypto assets, save for in the underworld – although some of those arguments could be made about people who use cash. Crypto assets don’t pay a dividend – the same is true of gold, of course, but it has a track record as a safe haven asset on its side – and with no significant real-world use, the price of any virtual asset is pretty much governed by what the vibe is around it.

Last year was full of good vibrations for crypto, with the launch of regulated exchange traded funds that provided easier access to investing and president-elect Donald Trump talking about “doing something great” with it when he returns to the White House later this month, as well as chatter about a US strategic reserve for crypto.

Only this week, our columnist Chris Blackhurst wrote that “crypto is set to prosper in 2025”, while our money expert Harvey Jones called Bitcoin “risky but exciting” and something to be approached with “extreme caution”.

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Risky is a word that covers a lot of ground. Last week, The National reported on increasingly sophisticated scams operating in the crypto space, which prey on those who are either new to virtual assets or jump in because they feel they are being left behind. Our reporting documented cases where individuals lost thousands of dirhams and dollars.

Billions have also been lost in system hacks over the years, and there are also cases of apparent pump-and-dump profiteer schemes in the crypto world, as indeed there are in other areas of the investment landscape. We’d also have to consider investor behaviour as a cause for concern, particularly if herd mentality (such as my own Fomo) or overenthusiastic promotion of such assets is evident in the marketplace, which it is. Both are traditional indicators of speculative bubbles.

So what does the future look like?

If I had one wish for 2025, it would be that this sector finds a middle way, somewhere less challenging than either the booster frontierland of crypto acolytes or the scam-filled place where criminals are to be found. Strides are being made in that regard to protect investors and create safe spaces. That work needs to continue.

A regulated stablecoin was recently given final approval, but that also sets up two opposing places for virtual assets: volatile for crypto and stable for digital coins linked to currency. We can’t just keep saying either caveat emptor or hold on for dear life, there has to be somewhere in between.