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Peter Guy

Bitcoin is dead. Long live bitcoin. Its ardent supporters are behind the struggle between an array of government and private cryptocurrencies.
Bitcoin proponents are as vociferous as Morpheus in The Matrix. After they’ve taken the “red pill,” bitcoin evangelists have seen the truth and heeded their calling.
The range of opinions is both wide and emotional: the cryptocurrency will either change the world, or it’s the biggest fraud ever.
Since China banned private ownership of bitcoin, rumours have emerged that the Chinese and the Russian governments are in hog, preparing to launch the prototypes of their own state cryptos. The main difference between a state sanctioned bank crypto versus the bitcoin is absolute versus relative anonymity offered to holders.
Technology Explainer: Key questions you need answered about bitcoin
The appeal of bitcoin is it’s false promise of absolute anonymity, but that isn’t true because information is available on each ledger and exchange.
Banks can only offer enough relative anonymity in their crypto products because current financial know-your-client and anti-money-laundering regulations won’t allow for absolute anonymity.
Yet, I haven’t seen any definitive study that defines with authority the degree of privacy and secrecy consumers really desire.
Funnily enough, banks must find a way to reckon the technological paradox of cash actually being the original cryptocurrency.
Like bitcoin, cash can be held and transferred anonymously. Except that cash is physical and bitcoin is digital. You can hold all of your bitcoin assets in a small device while few people nowadays want to hold cash under their mattresses.
State controlled cryptocurrency is a march toward a digital economy and a cashless society. Once the masses have accepted the cashless society, governments will possess absolute power. Without cash, there can be no bank runs. Or imagine the sheer, dystopic evil of embedding an expiry date on digital currency forcing consumers to spend it within a certain period to compel the population to spend more and stimulate the economy.




But, what if bitcoin and private cryptos are scams - a massive bubble that, while making some people multimillionaires, still a relentless Ponzi scheme? If so, then forget all the MBA babble about its “technology adoption curves.” All the fancy charts shown at conferences must vanish because you can only apply them to real technologies or products.
Nothing wrong with speculation, especially in Hong Kong. But don’t confuse it with a medium of transaction or a store of value that you can stake your life savings and an entire economy upon. That’s the harsh dichotomy that fuels the war. Either it’s enshrined by followers as a technological revolution, or it’s derided by bankers as an outright fraud.
Read: Cryptocurrencies are a bubble, but blockchain is the future, analysts say
If cryptocurrencies are a bubble, then it’s largely a pump and dump game sucking in the gullible masses. And the most effective salespeople are those who actually and fervently believe what they’re saying. So investors need to decide if it’s merely a bubble punt or a serious contender to replace the dollar. Or speculate on re-bar futures contracts in Shanghai.
Then, there are those who bend the laws of finance by arguing about owning bitcoin for diversification or hedging. The problem is that unlike other financial assets, bitcoin doesn’t negatively correlate to other financial assets, so it cannot act as a reliable hedge or diversification.
Goldman Sachs recently released a report that supports gold as a reliable store of wealth rather than bitcoin, which is untested in market downturns. It emphasised that cryptocurrencies are vulnerable to hacking, arbitrary government regulation and infrastructure failure. In dollar terms, bitcoin has been seven times more volatile than gold this year.
Technology Explainer: What is an ICO, and why is China’s central bank banning it?
However, there is no effective way to fully enforce a global ban on cryptocurrencies. They will find some way to operate in the black market.
Perhaps some governments with especially weak currencies will embrace cryptos to access stable money. Historically, users seek fiat currencies they trust.
Just ask anybody what would they accept in exchange for their output of labour. Don’t confuse cryptocurrency with legal tender fiat. Then, you will see that the crypto is not supposed to be real money. It is a cipher, a medium between real money and value.
Yet, cryptocurrencies represent a technological expression of what the economist James Tobin argued should be a “reliable platform” whereby citizens could deposit or withdraw their savings without assuming the risks of a fractional banking system.
Banks are challenged by the need to control the unpredictable aspects of their own crypto. For example, during a bank or liquidity run, depositors who rapidly convert their fiat currency to crypto end up creating liabilities on the books of the central bank which places more parallel pressure on the fiat currency.
The death of bitcoin has been predicted over and over again. Part of the reason is that every bull market needs a wall of worry and capitulation to overcome. But like all revolutions have proved, you can’t kill ideas.
Peter Guy is a financial writer and a former international banker.




‘Sentiment is bleak’: bitcoin declines as geopolitical tensions add to risk-off mood

How things went ‘downhill’ for Vietnam’s once-booming cryptocurrency traders

Crypto rout set to deepen as Standard Chartered warns of further downside risks

Policy to products: Web3 innovation takes centre stage at Consensus Hong Kong

Bitcoin

Cryptos will live on, because ideas can’t be killed in the global war over currencies

Bitcoins sit among Ethernet cables inside a communications room at an office in this arranged photograph in London, UK, on Tuesday, September 5, 2017. Bitcoin steadied after its biggest drop since June as investors and speculators reappraised the outlook for initial coin offerings. Photo: Bloomberg

A cryptocurrency deal and a triad boss called Broken Tooth – what can possibly go wrong?

Wan Kuok-koi is escorted by Macau Police to court in 1998. Photo: Handout

Wan Kuok-koi, better known as "Broken Tooth Koi", a former notorious triad leader in Macau, is released from Coloane Prison (Estabelecimento Prisional de Macau). Coloane Prison (Estabelecimento Prisional de Macau), Coloane, Macau. 01DEC12

Wan Kuok-koi, better known as ‘Broken Tooth’. Handout photo

As China closes its doors to cryptocurrencies, exchanges shift their attention overseas

A Chinese bitcoin customer, The country’s ban on bitcoin and other cryptocurrencies buying using yuan came into effect on September 30, and the final date for exchanges to halt trading services in October 31. Photo: Imaginechina

A bitcoin sits on coaxial cables inside a communications room at an office in this arranged photograph in London, U.K., on Tuesday, Sept. 5, 2017. Bitcoin steadied after its biggest drop since June as investors and speculators reappraised the outlook for initial coin offerings. Photographer: Chris Ratcliffe/Bloomberg

Bitcoin bounces back: Chinese traders give volatile cryptocurrency a boost as investors see returns of over 36 per cent

A beer poured for a customer sits on a bar next to a Bitcoin sign in central Sydney, Australia, September 29, 2015. Australian businesses are turning their backs on bitcoin, as signs grow that the cryptocurrency's mainstream appeal is fading. Concerns about bitcoin's potential crime links mean many businesses have stopped accepting it, a trend accelerated by Australian banks' move last month to close the accounts of 13 of the country's 17 bitcoin exchanges. Picture taken September 29, 2015. REUTERS/David Gray

A customer of an Australian bank walks away after withdrawing money from an Automatic Teller Machine (ATM) located next to a Bitcoin ATM at a shopping mall in central Sydney, Australia, October 1, 2015. Australian businesses are turning their backs on bitcoin, as signs grow that the cryptocurrency's mainstream appeal is fading. Concerns about bitcoin's potential crime links mean many businesses have stopped accepting it, a trend accelerated by Australian banks' move last month to close the accounts of 13 of the country's 17 bitcoin exchanges.. Picture taken October 1, 2015. REUTERS/David Gray

A beer poured for a customer sits on a bar next to a Bitcoin sign in central Sydney, Australia. Photo: Reuters

Blockchain start-up Loopring raises US$45m in ICO as regulator intensifies scrutiny of cryptocurrency market

A signboard informing customers that Bitcoin can be used for payment at a store in Tokyo. Photo: AFP

A sign is seen in a restaurant where a Bitcoin ATM is located in Toronto, Ontario, Canada June 3, 2017. REUTERS/Chris Helgren

FILE - This April 3, 2013 file photo shows bitcoin tokens in Sandy, Utah. The Mt. Gox bitcoin exchange in Tokyo is headed for liquidation after a court rejected its bankruptcy protection application. Mt. Gox said Wednesday, April 16, 2014, the Tokyo District Court decided the company, which was a trading platform and storehouse for the bitcoin virtual currency, would not be able to resurrect itself under a business rehabilitation process filed for in February. (AP Photo/Rick Bowmer, File)

China’s bitcoin gloom may be Hong Kong’s boon as crypto issuers switch to city’s exchanges

Technicians exit a cooling chamber near a wall of bitcoin mining machines at a mining facility operated by Bitmain Technologies in Inner Mongolia, China. Photo: Bloomberg

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Bitcoin’s death has defied naysayers because every bull market must overcome a wall of worry and capitulation. But like all revolutions, ideas can’t be killed.


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.css-1m2rp1p{color:#34b8b5;}The View | Cryptos will live on, because ideas can’t be killed in the global war over currencies

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Bitcoin’s death has defied naysayers because every bull market must overcome a wall of worry and capitulation. But like all revolutions, ideas can’t be killed.

The View | Cryptos will live on, because ideas can’t be killed in the global war over currencies

Bitcoin’s death has defied naysayers because every bull market must overcome a wall of worry and capitulation. But like all revolutions, ideas can’t be killed.