David Bullard writes on the pleasures and perils of investing in the crypto currency
OUT TO LUNCH
If you’d bought Bitcoin exactly a year ago just as the world was entering its seemingly endless pandemic lockdown it would have cost you around US$8 000. Obviously you wouldn’t have known at the time that we were entering a period of unprecedented surrender of our personal freedoms and so, equally obviously, you wouldn’t have realized that the funds you, as a person of unearned white privilege, had set aside for yet another sybaritic jaunt to Tuscany or Bali could have been better utilized.
However, if after examining the entrails of dead animals or reading tea leaves you had somehow managed to get some idea of what 2020 had in store for us all and bought Bitcoin at US$8 000 you would be feeling very smug right now with the price at US$50 000. There aren’t many ‘investments’ that have returned over 600% in a year that I can recall.
OK, I know what you’re thinking…. here we go…. Bullard bought Bitcoin and now he’s going to rub it in while he takes delivery of his brand new Bentley Continental GT. Well there’s good news and bad news on that front. The good news for you lot is that I didn’t so you can put away the voodoo dolls and the bad news is also that I didn’t.
Sophisticated investor and former doyen of the embryonic South African derivatives market that I am, I never managed to warm to the idea of Bitcoin despite having several brave friends who were buyers and who apparently made money out of it.
I was tuned in to Cape Talk last week and was encouraged to hear that John Maytham (he of the long exasperated sigh) also couldn’t fathom Bitcoin. Maytham is Primedia’s answer to Marvin the Paranoid Android in Douglas Adams’s ‘Hitchhikers Guide to the Galaxy’ and shares Marvin’s all-pervading weltschmerz (delicious word) as well as having a brain the size of a planet.
So when Maytham says he cannot get his aging brain around the idea of Bitcoin and how it works and has no intention of trying I don’t feel nearly as bad.
I have good friends whose banker son has put his pensioner parents into Bitcoin and they are already a few million rand up on paper. I have other friends who got in and cashed out at a handsome, capital gains tax free profit. Most of my friends though, many of them sophisticated investors, wouldn’t touch it with a bargepole and I can’t say I blame them. The only thing that seems to be driving the price up is the good old-fashioned explanation of more buyers than sellers plus the odd front running tweet from Mr Elon Musk.
Obviously the attraction of making a ludicrously high, tax free return on your money has led to a lot of FOMO (fear of missing out) which is exactly what I was suffering from when I thought that maybe crypto-currencies and more particularly Bitcoin might warrant a second look before I commit the family millions.
It’s very simple really. A man, or group of men, or maybe men and women, called Satoshi Nakamoto decided in 2008 to create an imaginary currency that would be traded online and call it Bitcoin. Nobody has any idea whether Nakamoto San ever existed or whether he/they is still alive. So that’s a pretty good start from a credibility stance.
Nakamoto apparently decreed that there should be 21 million Bitcoins eventually. Once that number is reached there can be no more. Quite why the number 21 million is so significant is unknown although as the dollar price rises the Bitcoins can be split into fractions of Bitcoin so the 21 million total is largely irrelevant, albeit puzzling.
Bitcoins are apparently ‘mined’ and this is the tricky part to get your head around. Despite the picture of a gold coin with the Bitcoin logo on all the advertisements they don’t actually exist in any physical form and haven’t been hidden by Mr Nakamoto on the slopes of Mt Fuji like some oriental version of the Kruger gold.
They are mined by people with immense computer power and when they are discovered the miners get rewarded in Bitcoins. Simple isn’t it? Pictures exist on Wikipedia of banks of computers all looking for Bitcoins and chewing up far more electrical power than South Africa has to spare.
For those of us without the knowledge or wherewithal to mine our own Bitcoins there exists a market in Bitcoin which enables us to buy and sell this purely imaginary currency which is, in effect, a line of computer code. That’s where you need a ‘wallet’ which you open with one of the many crypto currency dealers and where, in exchange for more tradable but equally imaginary fiat currency, you can buy Bitcoins.
I mention that fiat currency is equally imaginary but it has been around for a while and has gained credibility. So when I hand over a R100 note to a shop-owner both the shop-owner and I have a pretty good idea of the purchasing power of that R100 and feel a degree of confidence that it will still have the purchasing power of R100 the next day.
Although, reading the inimitable R W Johnson, this may be something we won’t be able to take for granted for much longer. Fiat currency is so much easier than barter exchange but the system only works if there is a commonly held confidence in the currency. A quick glance at our friends up north in Zimbabwe shows what can happen when that confidence evaporates and the currency becomes worthless.
Bitcoin as a means of exchange, on the other hand, is a disaster. In the past month you could have spent the Bitcoin equivalent of US$54 000 on a designer handbag on Monday 22nd February and by the next day Bitcoin was trading at a shade under US$49 000.
This doesn’t make crypto currency a particularly attractive proposition for a commercial operation despite protestations from crypto fans that in the near future all transactions will be done this way.
The volatility in the Bitcoin market means that you can either make or lose a fortune very quickly. On the 15th December 2017 the Bitcoin price hit US$19000; a year later it was trading at US$3400. That’s hardly a great store of value.
Finally, the fact that Bitcoin’s success or otherwise as an investment has to be expressed in dollar terms tells you all you need to know. When you can pay your rates or buy a car with Bitcoin then you can have some confidence in its fungibility. Until then it’s simply a roller coaster ride but at least it saves you a trip to the casino.
I frequently worry that our elected leaders aren’t really cut out for the job. That sounds like a pretty obvious statement to make but it’s got nothing to do with the billions of rands that well connected corrupt ANC cadres have pocketed over the years. Neither has it anything to do with the lack of suitability of so many complete incompetents appointed to well remunerated positions in state owned enterprises.
This seems to be something that even President Frogboiler has suddenly become aware of judging by last week’s newsletter to the riff-raff who pay the taxes. No, what worries me most is whether our elected leaders are mentally stable enough to run a government.
They do seem terribly easily unhinged and following on ‘Maskgate’, where calls have been made from on high for Lindsay Dentlinger and eNCA to apologise to the nation for the incredible racial hurt caused, we now have ‘LoveIslandGate’ to contend with.
I don’t have DSTV anymore but it appears that a programme called ‘Love Island SA’ aired last week and has destabilized the entire country. As I understand it Love Island is a programme in which men and women who have been unable to successfully find a sexual partner in any of the more usual ways are paired up for the voyeuristic amusement of TV viewers. Obviously the makers of the programme would prefer contestants to be easy on the eye otherwise the programme’s ratings would plummet. However, the major cause for concern among the chattering classes this week has been the woeful lack of melanin in the show.
Naturally this has led to the usual confected outrage and accusations of ‘racism’ and I have no doubt that a presidential commission will have to be formed to investigate the matter at great cost to the taxpayer.
Like me, you may have foolishly believed the prospectus back in 1994 which promised a non racial society. In which case the skin colour of contestants on a TV reality show would have been of no consequence whatsoever. But race baiting is the gift that keeps on giving so it has been decided that there are too many white people in Love Island and not enough black people.
It doesn’t represent the demographics of the country and those of a sensitive disposition have suggested that the makers of the programme don’t think black people are as attractive as white people. This has apparently caused LottoStar, the main sponsor of the show to withdraw.
Although the race card is being played I suspect the problem this time around has nothing to do with colour. From what I’ve seen of the contestants they are all on the skinny side and it’s well known that a bit of avoirdupois is favoured in this country.
A glance at many of our politicians will confirm that the term ‘political heavyweight’ is more a comment about the reading on the bathroom scale than it is about the intellectual heft of the politician. So all DSTV need do to regain credibility is balance the show with a few well-chosen chubbies. I’m sure both the EFF and ANC would be more than happy to oblige.