Why Dr Doom Roubini & Co are attacking bitcoin

by from interactive investor |

Award-winning cryptocurrency analyst Gary McFarlane rounds up the weekly news in crypto land, including the view of top economists on the sector.

Bitcoin is 5% lower for the week at $6,250 as the rally that saw the cryptocurrency go as high as $6,885 last Sunday stalls.

Suffice the rest of the crypto market has fallen back alongside bitcoin, with the biggest faller among top alt coins being EOS, off 17% on a week view and Cardano (ADA) and IOTA (MIOTA) 10% lower. Ripple's XRP continues to lose value, registering a price of $0.44, a long way from its all-time high of $3.58.

With no particular convergence of factors pressuring prices, it looks like the rally simply ran out of steam on low volumes, currently back down in the 3.6 billion region after nearly hitting $5 billion on 5 July.

In the US the launching of the Task Force on Market Integrity and Consumer Fraud, which singled out "digital currency fraud" for "particular attention", may not have helped sentiment. The task force includes input from the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission.

This year, both have tightened their oversight of the crypto sector, with an investigation into market manipulation ongoing and the SEC taking a tougher line on initial coin offerings. Some have been ordered to close by the regulator.

For now, bitcoin is holding its own above $6,000, with the pullback doing nothing to dampen the enthusiasm of the perennial bulls.

In fact, some might argue it is the bear market that is pushing industry leaders to put out lofty price targets to stoke waning interest in crypto, judged by falling Google Searches and interest among investors.

One recent survey found that chief executives are more likely to be talking about Fortnite – the hugely popular free to play game – than they are about bitcoin or crypto.

Co-founder of TenX Julian Hosp, a crypto card and wallet startup, seems the price going to $60,000 by year's end. "Back then, December, price was at $20,000 all-time high. I predicted for 2018, we're going to see $5,000 and $60,000. So $5,000, we pretty much hit it, so let's see if we can do the $60,000. I'm still quite confident," he told CNBC. caveat, namely that for his price target to materialise a "massive positive event" would need to happen.

Another boosterish intervention came from Coinbase chief technical officer Balaji Srinivasan, who predicts a 60-fold increase in crypto adoption with some misleading statistics and fuzzy thinking, according to critics.

"About 8% of Americans hold crypto and probably <1% of the world. By contrast, about 63% of world adults own smartphones. So that’s >60X growth remaining for crypto in terms of userbase size. It's all just getting started," he claimed in a tweet on Wednesday.

The 8% figure for crypto ownership seems very high, but comes from a survey conducted by finder.com in February in a sample of 2,001 US adults. Other estimates of ownership rates are closer to 1% or less figure that Srinivasan cites for worldwide adoption. Also, just because someone has a smartphone doesn't mean they are thinking about using or investing in crypto, although in cashless society the smartphone would be a key tool to store and transfer value, although the security risks involved remain.

Bitcoin ETF approval chances gets a helping hand

Going back to Hosp's "massive positive event" proviso, the SEC has just asked for comments from "interested persons" on the latest ETF offering on the table for the regulator's consideration.

VanEck SolidX Bitcoin Trust is the latest vehicle from ETF provider VanEck, which saw previous attempts to gain approval from the SEC fail. VanEck has teamed up with crypto services provider SolidX to design the ETF which this time will hold the underlying asset – bitcoin – directly. The issues of price volatility and discovery, poor liquidity and lack of transparency on crypto exchanges still remain and were the reasons that prevented past bitcoin ETF efforts being successful.

However, the advent of bitcoin futures, which have been trading since December, and new proposals to make it easier to list ETFs, are seen as moving the needle.

According to Reuters, a vote by SEC officials has given the green light for ETF provider to be able to launch "plain vanilla versions" without seeking prior regulatory approval.

Todd Rosenbluth, director of ETF & mutual fund research at CFRA Research, told Reuters that the rule change would "support new ETF launches, particularly tied to long-term thematic approaches, from small independent asset managers."

Making it easier for smaller managers with more esoteric product offerings may help prospective bitcoin ETF providers such VanEck.

Last week, we reported on Cardnao boss Charles Hoskinson's appearance at Google HQ in London, and the tech giant was making news on the crypto front again this week. Co-founder Sergey Brin admitted that the company had "failed to be on the bleeding edge of blockchain" in comments he made at blockchain conference in North Africa.

However, Brin suggested in further remarks that blockchain is very much on Google's radar, with its Google X research division the likely home of its efforts in the distributed ledger technology space. "I see the future as taking these kind of research-y kind of out-there ideas and making them real — and Google X is kind of like that," Brin revealed.

His interest in crypto was piqued "a year or two ago" when he started mining at home with his son. "My son insisted that we needed to get a gaming PC. I told him If we get a gaming PC we have to mine cryptocurrency. So we got an Ethereum miner on there and we've been making a few pennies and dollars since."

Brin continued, "that definitely got me interested and I started to study the technology behind it and found it to be fascinating."

Google may be behind the curve at this point, but it looks like they aim to catch up fast.

Advertisers are looking to blockchain

Evidence of interest in blockchain technology is seen the development of products in the advertising industry.

The Wall Street Journal reports that Anheuser-Busch InBev, AT&T, Kellogg Co, Bayer and Nestle are all working on blockchain solution to clampdown on online advertising fraud, which is rampant in the "programmatic" area where software is used to match up advertisers and publishers' inventory.

Market research firm Warc estimates that just 40% of the revenue from such advertising actually flows back to the publisher.

"I believe in the next two to three years, most of the programmatic media will move to being blockchain-based because advertisers will want transparency and this will provide it," said Lucas Herscovici, a vice president at Anheuser-Busch (A-B) one of the largest advertisers in the world.

A-B has deployed a blockchain solution from ad tech firm Kiip.

Nestle's head of business Sebastien Szczepaniak thinks it won’t be long before ad contracts begin to require that the parties involved must use blockchain technology.

At the centre of the valuation story for crypto is the question of adoption.

With that in mind, investment platform eToro commissioned a report from Imperial College entitled Cryptocurrencies: Overcoming Barriers to Trust and Adoption. The report was written by professor William Knottenbelt and Dr Zeynep Gurguc and is decidedly positive about the prospects for crypto adoption.

Knottenbelt, said of the research report: "There's a lot of scepticism over cryptocurrencies and how they could ever become a day-today payment system used by the man on the street. In this research we show that cryptocurrencies have already made significant headway towards fulfilling the criteria for becoming a widely accepted method of payment."

The extent of that "significant headway" was doubted by some, with Jemima Kelly at FT Alphaville, long-time crypto detractors, questioning the integrity of the report, given the academics were paid to put it together by a company that is active in the sector. 

"It's true, the foreword is clearly marked as having been written by eToro, and the rest not. What might surprise some readers is the unifying boosterish tone of both. Peer reviewed this is no," Kelly observed.

Economists attack crypto

The report appears in the same week that respected economists Joseph Stiglitz, Nouriel Roubini and Kenneth Rogoff launched swathing attacks on bitcoin and crypto in general.

Nobel Prize winning economist Stiglitz and a former chief economist of the World Bank but now a professor at Columbia University thinks the monopoly of a state over money in its jurisdiction is the killer for cryptocurrencies.

"You cannot have a means of payment that is based on secrecy when you’re trying to create a transparent banking system.

"If you open up a hole like bitcoin then all the nefarious activity will go through that hole, and no government can allow that."

Rogoff, former chief economist at the IMF for his part reckons that bitcoin could be worth "$100 in 10 years" because "people in power will move to regulate anonymous transactions".

And not to be left out, Roubini challenged the moneyness of bitcoin: "For bitcoin to be a currency it has to be a unit of account, a means of payment, and a stable store of value. It is none of these. Bitcoin is not even accepted at Bitcoin conferences, and how can something that falls 20% one day and then rises 20% the next be a stable store of value."

Many of those criticisms are valid, but most of the cryptocurrencies are not seeking to be a medium of exchange but instead are targeting disruption of particular industries, such as advertising.

State monopoly over money issuance doesn't mean that crypto forms cannot co-exist alongside it, although as they become more widely adopted the could be a threat to state money, so it is difficult to see how governments would allow that state of affairs to develop.

However, supporters of crypto aiming to disrupt money – from bitcoin through to so-called privacy coins such as Monero – claim that the internet makes it impossible to close down a decentralised computer network and moves to try and do so would add to the value proposition.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation, and is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.