True money stories from smart people: Crypto currencies - More ups and downs than the Wild West

12 September 2017

Just when you think you’ve got your head around the new-fangled payment systems, including the fact that some Anglican churches are now taking contactless collections – a mind-boggling new digital form of currency hits the general consciousness.

Crypto currencies – specifically bitcoin and its competitor ethereum – seemed for so long to be ideas you could push to the edges of consciousness as something that couldn’t happen in our lifetime, like flying cars or Melania Trump wanting to be anywhere near her husband.

But now you can buy burgers with bitcoin – at least, you can in London’s Shoreditch district, which likes to think of itself as the cutting edge of cool (hey, I like to think of myself as a supermodel too, but that doesn’t make it so).

You can get bitcoins at ATMs in London, New York, and Japan, and they’re increasingly the currency of choice for businesses in China wanting out of government control. The value of both bitcoin and ethereum has also jumped at rates that make footballer Paul Pogba’s record-breaking transfer fee look stingy. In just the past 12 months, bitcoin has gone up by 410% and ethereum has increased by 4,000%. In the past two weeks, I’ve had hedge fund managers asking me: “What is this crypto currency thing and how can I get some of the action?”

Stories abound of fortunes made by accident through this new “virtual” money, such as Kristoffer Koch, who bought 5,000 Bitcoins in 2009 for $26.60 and forgot about them until 2013 when they were suddenly worth $886,000 and he could buy a posh flat in the centre of Oslo, Norway. Or poor James Howells, who threw out a hard-drive from a defunct Dell laptop and then, in 2015, realised that it held a digital wallet with 7,500 bitcoins worth £4 million (now well over four times that amount) – it’s no wonder investors are sniffing round any new crypto currency offering, not wanting to be left out of the potential pot of virtual gold at the end of a raggedy rainbow.

And the rainbow is raggedy, make no mistake. The new buzz-term in the investing world, “ICO” (Initial Coin Offering) is, as it sounds, the crypto currrency version of an IPO (Initial Public Offering), generally launched by 20-year-olds called Calum with a glint in their eye and no shaving equipment. The look is dress-down Friday and the business plans are similar: essentially consisting of a call to “gimme some money, it’s gonna be great”.

Many ICOs read like someone going to their bank manager for a loan, taking 20 minutes to tell him that he’ll give them money and then spending two seconds on how their business will actually make a profit.

But the risk? Phew! It’s like attempting the North Pole in a bikini. Crypto currency consultant Gary Nuttall explains: “With an ICO, you are buying the equivalent of Airmiles, or Sainsbury’s vouchers – basically Monopoly money. Unlike an IPO, it’s unregulated and you don’t own any assets at all.” That means that if the business falls apart, you’re left with nothing. Yay. What’s not to like?

So why would you even think of putting your hard-earned cash into one of these ‘businesses’? Well, it’s the promise of those vertiginous leaps that bitcoin, ethereum and a handful of other crypto start-ups have made recently. It’s the Wild West again – like the internet was when the dotcom boom broke into our consciousness in the 1990s – but this is more than that. It’s the Wild West on acid. The ICO world has more extreme ups and downs than a Kardashian relationship, and a similar likelihood of being shafted at any moment.

If you have the stomach (and money you don’t mind losing), there are potentially staggering wins to be had. As The Guardian journalist Alex Hern said in his column recently: “If I’d invested £100 in bitcoin every time I told someone else it was silly to buy them, I’d be out in the sun today instead of writing this column.”

And let’s face it, crypto currencies really do seem to be the future. They’re transparent – everyone can see how many “coins” are in circulation and who has them – and they’re outside of government control. They’re part of the new upside-down world order where corporations and technology have already overtaken sovereign nations and driverless cars are on the roads if not, yet, flying ones. It’s when the Church of England asks you to “give us this day, our daily bitcoin” that you’ll know for sure that it has really arrived.

Jasmine Birtles is a financial journalist and founder of Read her other columns for Moneywise.

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