The bitcoin bubble’s real losers

A once-in-a-lifetime chance has emerged to invest in SchadenfreudeCoin — a decentralised digital token pegged to the smugness of No-Coiners who were never sucked into the ailing cryptocurrency fad.

The highly scalable, next generation, disruptive new coin comes with the backing of social media celebrities and provides the perfect hedge against the declining value of Bitcoin. Hand over your bank details now.

It’s a joke, but only just. Those of us accustomed to the daily lorry-load of cryptobabble emails can attest that it is scarily close to the real world of PR foisting untested and unregulated financial products on to naive investors. And given the levels of crowing from the crypto holdouts, a SchadenfreudeCoin could even be quite lucrative.

The stream of asinine crypto promotions is waning, however. It will probably soon dry up altogether, given the asset class’s dreadful recent run. From a peak of about $20,000 per coin in December, Bitcoin — the biggest of thousands of digital coins around the world — has tanked to around $6,000.

True, anyone who bought before November last year is at least still flat on their investment. Fans still recommend holding (“HODLing” in the market’s parlance), a comparatively easy task given how hard it can be to liquidate positions. Still, the glum tone among the true believers who once castigated holdouts as “Keynesian bag carriers” is clear.

“Sadly, I have to report low conviction today,” one crypto trader laments in an emailed note. “There’s also the issue of tepid fiat-crypto exchange volumes which speaks to low retail demand and a lack of fresh retail capital entering the ecosystem.”

That is a telling comment. The market, even according to its supporters, relies on drawing in new blood. It cannot thrive and has no fundamental driver for further gains without it. “Bust is the word,” said the chief executive of IG Group, one of many retail brokers that happily rode the wave of huge buying volumes towards the end of last year but that now thinks the frenzy has passed.

The last thing crypto buyers sitting on losses need to hear right now is “I told you so”. Only the hardest of hearts can fail to feel sympathy for investors who have lost their savings for college or whose first foray into financial markets has left them ruined. Nonetheless, it’s hard to sympathise with the buyers who disregarded the pleas of (most) regulators, central banks and the bulk of sane financial advisers to steer clear. Particularly tiny violins will squeak for the professional bankers who jumped in.

In April, I was invited to moderate a discussion about the prospects for cryptocurrencies. The panellists broadly, though not universally, agreed that they were limited, but that something may be possible to salvage from the underlying technology.

One asked for a show of hands among the audience, which comprised roughly 120 bankers — sales and trading types — and other financial intermediaries, to determine how many had bought into the craze. At least two-thirds raised their hands, many had sold close to the top, and almost all were still in the black.

Did they believe the hype? That crypto was about to wash away the antiquated fiat money system from which they drew their livelihoods? Unlikely. They just did what they do best and found a greater fool with less information and fewer market smarts, and piggybacked on their flows.

Crypto is limping on, but has proved itself to be more than small enough to fail. The price crash has had zero ramifications for financial markets so far.

Of course, there is one shining city upon a hill that is keeping the faith: Venezuela. President Nicolás Maduro this week launched a new national currency pegged to an oil-based crypto coin. As one observer noted: he may as well have pegged it to unicorns.

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