Investment gurus ranging from economist Nouriel Roubini to JPMorgan CEO Jamie Dimon have been calling the death of bitcoin for years now, only to see the cryptocurrency’s market value surge ever upwards.
Legendary investor Warren Buffett famously labelled it “rat poison” in 2018, prompting US financial broadcaster Max Keiser to agree, but only because he claimed Buffett was the rat.
With Covid-19 having upended the world as we knew it, the debate about bitcoin’s merits drags on even as the cryptocurrency continues to set all-time highs, only to suffer precipitous falls, followed by seemingly miraculous recoveries. Now cryptocurrency trading simulator Crypto Parrot — a platform that allows mock trading of cryptocurrencies without risking any capital — has released research that shows bitcoin’s critics are beginning to rein in their predictions of the digital currency’s demise.
Crypto Parrot says bitcoin “obituaries” declined to just 13 in 2020, a drop of more than 68% from the 41 deaths predicted in 2019 and down from the 93 times bitcoin was declared dead in 2018. The trading simulator says that’s the lowest number of bitcoin obituaries since 2013.
The total number of bitcoin obituaries since 2010 stands at 382, with 2017 seeing the highest recorded number of death notices for the cryptocurrency at 124. In 2017, Dimon labelled bitcoin a “fraud” that would “blow up”, though it later emerged that the Wall Street bank was nevertheless routing customer orders for bitcoin-linked exchange-traded instruments.
“The mainstream media and leading economists initially took the lead in casting doubt about the asset’s future,” says the Crypto Parrot research report. “However, with institutions embracing bitcoin, the narrative appears to be changing.”
The market capitalisation of crypto assets surpassed $1-trillion for the first time earlier in January as central banks around the world ramped up quantitative easing measures to shore up their pandemic-hit economies. That has renewed fears that debasement of traditional fiat currency may fuel inflation, sparking a flurry of investor interest in crypto assets that has seen bitcoin and ethereum, the two cryptocurrencies with the biggest market capitalisations, set all-time highs in 2021.
Shehnaaz Suleman, an associate director at BDO IFRS Technical Advisory, says while the blockchain technology underpinning crypto assets has the potential to revolutionise finance by digitising and automating transactions, she cautions that the retail frenzy of cryptocurrency investing may be out of kilter with market fundamentals.
“One of the things driving retail interest in cryptocurrencies at the moment is that everybody is looking to catch the next big asset price surge,” she says. “People have grown impatient with traditional asset price returns.”
The surging interest in cryptocurrencies is also attracting the attention of policymakers who are concerned that the rise of digital assets could usurp central banks’ main tool in setting policy — controlling the supply of money. Despite additional concerns about the use of cryptocurrencies to fund illicit activities, the accelerated interest in crypto assets and the increased digitisation of finance is spurring central banks across the world to speed up investigations into the viability of central banks issuing digital currencies.
The SA Reserve Bank told Business Day earlier this week that foreign-exchange control regulations were being amended to include cryptocurrencies, while crypto asset service providers will need to apply for a special licence from the Financial Sector Conduct Authority.
The Bank also continues to test the feasibility of a digital or tokenised rand and how it might be used in the wholesale and retail environments, as well as the implications for SA’s policy and regulatory framework.
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