I tend to stay away from cryptocurrency, both with my own cash and in the words I write. As I have written repeatedly here, I see it as a little more than a pyramid scheme, a get-rich-quick proposition that will implode at some point and take with it investor money.
When I think of bad investments, I often think of this scene from the TV show Life’s Too Short. In it, hustling actor Warwick Davis (played by Warwick Davis) takes fellow thespian Val Kilmer (played by Val Kilmer) to a restaurant to meet his ‘friends’ Ricky Gervais (played by Ricky Gervais) and Stephen Merchant (played by Stephen Merchant). There, Davis tries to cajole Gervais and Merchant into investing in a sequel to Willow, the 1988 film that he and Kilmer starred in.
As Davis stands there with Kilmer (dressed as Batman) pleading his case, the camera pans over the faces of Gervais and Merchant as they listen incredulously to his pitch. After he finishes and Kilmer, having purloined the remainders of Merchant’s tiramisu, goes over to talk to random people at other tables, Davis says that George Lucas and Ron Howard are both involved in the proposed sequel and that he has already raised £5,000 in funds towards development.
Gervais quickly punctures Davis’ delusion and reveals that Kilmer is grifting—or attempting to grift—everyone for money. Of Lucas and Howard, Gervais says, “If those guys are onboard, why are you scrabbling around trying to raise a few grand from friends and relatives or whatever? They must have that sort of money lying around in drawers.”
Lost in translation
I have been thinking of this whenever I read something new about cryptocurrency. And this week has seen a couple of cryptocurrency-related things come across my desk, so I figured it was time to dust off the typewriter and write something about it.
Cryptocurrency has no intrinsic value, no security, is largely unregulated, suffers from wild fluctuations, and even China wants nothing to do with it.
If cryptocurrency was so amazing, it would have been adopted by the financial powerhouses—the asset managers and banks—first. The fact that it was not should speak loudly enough for itself. The problem is that even among my brethren who should be speaking properly about this, a lot of the meaning is being either distorted or lost in the wash.
The first piece of news that I came across was a report on CNBC a week ago that Jamie Dimon, chief executive and chairman of JP Morgan Chase, had said during a recent event that ‘bitcoin is worthless’.
Dimon’s words were echoed two days later in a speech given by Sir Jon Cunliffe, deputy governor at the Bank of England. But much of the reporting around Cunliffe’s speech centred around the word ‘timebomb’, a word he never says in the speech but was seemingly used everywhere else.
That has probably to do with the fact that comment on the speech came quickly from Hargreaves Lansdown, who comment on everything, and everyone copied and pasted their press release without checking the original speech.
The pearl-clutching was a little ghastly. As Business Leader put it, “The deputy governor of the Bank of England Sir Jon Cunliffe clearly believes the speculation has reached such a level that a crypto time-bomb is now ticking, which could blow up in the face of the financial sector.”
Professional Paraplanner said exactly the same thing: “The deputy governor of the Bank of England, Sir Jon Cunliffe, clearly believes the speculation has reached such a level that a crypto time-bomb is now ticking, which could blow up in the face of the financial sector.”
What was actually said
Cunliffe actually said a lot more. And it was a lot more measured, although I guess that does not make for the best story.
What Cunliffe actually said, apropos of the Bank of England, on behalf of which he said he was not speaking directly, is that the unregulated crypto space could prove to be a risk to the global financial system one day and that regulators would have to look closely at it.
Here are some of his concluding remarks: “At the beginning of this talk I set out my conclusion that while financial stability risks from the application of crypto technologies are currently limited, there are a number of very good reasons to think that all else equal this might not be the case for very much longer. All else is not, of course, equal. Although crypto finance operates in novel ways, well-designed standards and regulation could and should enable risks to be managed in the crypto world as they are managed in the world of traditional finance.”
Cunliffe added: “Indeed, bringing the crypto world effectively within the regulatory perimeter will help ensure that the potentially very large benefits of the application of this technology to finance can flourish in a sustainable way.”
And: “Regulators internationally and in many jurisdictions have begun the work. It needs to be pursued as a matter of urgency. Technology and innovation have driven improvement in finance throughout history. Crypto technology offers great opportunity. As Emerson said: ‘if you build a better mousetrap, the world will beat a path to your door.’ But it has to be a truly better mousetrap and not one that simply operates to lower standards – or to no standards at all.”
That is a long way from saying that cryptocurrencies are a timebomb about to go off.
The BBC did offer some balanced coverage. Its story merely stated that Cunliffe had called for ‘urgent crypto regulation’, which was a lot closer to the truth than many others who ‘reported’ on it put out.
But other outlets like The Guardian put out a panicky headline ‘Bitcoin could trigger financial meltdown, warns Bank of England deputy‘ for the same story.
Cryptocurrencies are new, unregulated, and most will probably fail. We may live in an age when everyone yells ‘fake news’ at something that they do not agree with. But if we are going to talk about important subjects, can we not just let the facts speak for themselves?