Will the crypto winter be over soon?

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My colleague, Lois Vallely, recently wrote a brilliant weekend essay on crypto currency and her experience investing in the digital asset. She took a £30 punt on Ethereum, the second most popular digital currency after Bitcoin, at the tail end of last year.

At the time, Ethereum was trading at £3,456 and there was lot of hype by influencers on social media that it will hit the £10,000 mark. Four months later, the crypto sector suffered its worst crash wiping out $2trn of market value. Ethereum’s value dropped to £1,347.

Unfortunately, my esteemed colleague’s investment didn’t pay off. Up to the time of writing this piece, the value of her Ethereum investment is £14.41. Ms Vallely has rightly taken a dim view of the crypto market and concluded that it is “all mouth and no trousers”.

I sympathized with her ordeal. I hope she will put down her loss as market research and claim it back as expense.

Despite her experience, I do have an opposite view of crypto. We love our polemics at Money Marketing HQ. I believe in crypto and subscribe to the view that it will modernize and democratize the anachronistic global financial system.

I also believe that it will be a force for good and improve financial inclusion when it is universally adopted. Many people with access to phones will be able to make transfers without relying on third parties. This is because the tech system, blockchain, that supports cryptocurrency is inherently secure and digital.

On Monday (31 October) while the rest of the world was celebrating Halloween, Bitcoiners were celebrating the 14th anniversary of White Paper Day. On that day in 2008, the inventor of Bitcoin Satoshi Nakamoto sent out an email titled ‘Bitcoin: A Peer-to-Peer Electronic Cash system’ to a small group of developers.

The opening line of the email has achieved cult status, in the same breath as the Magna Carta, among the Bitcoin community.

“I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third part,” Nakamoto wrote.

This was the sales pitch of a trillion-dollar market. One of the most iconic moments of this millennium. Bitcoin which started life in humble beginnings as a pastime hobby among a fringe group of tech visionaries has taken over the world threatening the existence of fiat currency.

It is the most sought-after cryptocurrency investment. Big companies such as MicroStrategy, Tesla and Coinbase are among the firms with the largest share of Bitcoin. Other well-known investment firms such as BlackRock have also taken interest and joined the party belatedly.

Nakamoto, the brain behind the first blockchain, has become a mythical figure. There are legends about the life work of this person or persons. No one knows for certain the identity of Nakamoto. Their creation would have made them the 15th richest person in the world at the time Bitcoin hit its highest value of over £60,000 last year.

Other early adopters of this digital goldrush have made fortunes from their investment. And most of them, mainly Gen Xers and Millennials, have flaunted their wealth on social media while running ‘how to get-rich with crypto’ online workshops.

Crypto is still a high risk and high return investment. Little wonder detractors labeled it a Ponzi scheme. If you make a search entry on Google: ‘is bitcoin a Ponzi scheme?’, you will get over 1.2 million results in less than 50 seconds.

There is a huge interest in this digital gold, and people want to know if it’s a safe investment option. Bitcoin is still out of the reach of many small investors due to its exorbitant price.

But there is an allure to its rarity. And many people want a piece of this golden pie. The market is now saturated with thousands of cryptocurrencies to meet the growing global demand.

Like any other marketplace, it has attracted fraudsters who are trying to take advantage of impressionable people. More than 46,000 people (and counting sadly) have reportedly lost over $1bn in crypto scams since last year. On average the individual investor loss is about $2,600, according to data from the US Federal Trade Commission.

I think this is precisely why advisers say they won’t touch crypto assets with the proverbial bargepole. The Oracle of Omaha, Warren Buffet, was reported to have called Bitcoin “rat poison” and an “unproductive asset with no unique value”.

And his friend, Bill Gates, has made a similar swipe at the crypto market. He said the crypto bubble is “100% based on greater fool theory” meaning that the asset value depended on enough people willing to pay more for them.

Some advisers are warming up to crypto assets as a potential investment option for their clients. And firms in the sector are seizing the initiative to help advisers in this regard.

Schroders have already published a guide on cryptocurrencies and blockchain for advisers. The firm recently took a minority stake in Forteus, the asset management arm of the Numeus Group, a diversified digital asset investment company.

The crypto sector is facing its bleakest period since its inception. It’s going through a turbulent time as crypto firms faced serious financial difficulties including bankruptcy. Many in the sector called this period as the “crypto winter”.

Whether it will be a long or short winter depends on many factors such as global events and investor appetites. But one thing is certain, crypto is here to stay and will boom again.

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