Bitcoin bomb — long dark night of our beloved crypto?

PICTURE the scene. A man controlling a virtual avatar jacks into a digital ATM situated deep within the online multiplayer game SecondLife. He exchanges the games own digital token, Linden Dollars for BTC — the new deregulated currency being mined around the world by cryptophreaks. It was the dawn of the age of cryptocurrency and I was Kubrick, the SecondLife uber-hacker, cooking up bitcoin in my effort to topple the capitalist system.

I had downloaded the BTC open source client software the minute I found out about it on Reddit, and mined the coin, divided into Satoshis after mysterious founder Satoshi Nakamoto. I even completed online puzzles at “bitfaucets”, that trickled the currency into my blockchain wallet. Dreamt up several schemes involving alternative coins like lite-coin, feathercoin and ripple (all discarded as too energy intensive).

Little did I know I was becoming involved in a global financial cult, whose recent meltdown would not only correlate and imitate a decline in the S&P, but lead me to embracing traditional capitalism as a far saner, safer real-world alternative. (You can read my followup reappraisel here).

My first observation back around 2009, was that BTC was not exactly a great store of value (or as Warren Buffet called it in recent times, rat-poison-squared). As a novel means of exchange, it had some speculative value, as too the technology behind BTC represented financial innovation, whose utility was not solely the domain of BTC the currency, but BTC as in ‘the blockchain’.

Indeed the investment case behind crypto has proven to be somewhat flawed. The new ‘digital gold’ has turned out to be anything but gold, and is certainly not a ‘hedge against inflation’, in the process impacting upon the real world gold price and illustrating that financial systems based upon ever-shifting decimal places, and unstable ‘stablecoins’ have serious problems. In fact the only thing BTC has in common with Gold, is that both may be considered ‘non-productive’ assets, a quality which some crypto projects attempt to fix via ‘staking’ and generating ‘yields’.

Back then, merely getting the token exchanged for something of value in the real world, was itself a Promethean task, until the proverbial exchange of 1 BTC for one pizza happened in May 2010. I was one of the early adopters and pizza eaters, and like many geeks, at first promoted the new deregulated currency as a fair means of exchange outside of the conventional, an experiment in counter-economics and a possible world, a crypto-future free from the essential poverty caused by lack of exchange.

My online shopping spree eventually turned against me.

I had initially also embraced community currencies such as the Talent (hosted by Cape Town Talent Exchange), toyed with introducing a currency known as the ‘Woodstock Watt’ backed by the sale of electricity tokens and was now a willing participant on a digital roller-coaster ride. This story is a cautionary tale of what not to do in the face of unbridled innovation.

My puny holding of Second Life Linden Dollars which I exchanged for BTC, added to the few actual Satoshis I managed to mine alongside the trickle of BTC, allowed me to purchase altcoins via an exchange in Serbia. This was before the MtGox fiasco, which saw a leading BTC exchange go belly up, the victim of a double-accounts scam orchestrated by its founder.

While crypto-libertarian Ross Ulbricht also known as Dread Pirate Roberts was setting up Silk Road I was investing in Cryptostocks (disappeared) and Havelock Investments (ditto). None of my investments including a small investment in a ‘provable fair’ Bitcoin Casino panned out. Since before KYC, the sharks simply ‘pumped and dumped’ altcoins, burnt their rigs, or took your real cash for stock and then ducked to places far beyond, like Panama City.

In any event, bitcoin wallets could be stolen by computer virus attacks and brute forced, given enough time and CPU power, and thus I foresaw a moment in the near future when an artificial intelligence (AI) agent did something pretty similar, narrowing the limits placed on this guessing project by 1000x or more, and thus a coming crypto ‘space race’ in which the algo-kids good and bad, waged war against the algorithms. Burnt by Havelock, I threw in the towel.

Nevertheless a UCT computer studies associate of mine dragged me off to a Hacker meeting, in a shack under a bridge in Claremont, where I attempted to relate my tale, only to end up soaking in Ethereum (ETH) and hooked back on the cybersauce as it were. It seemed once the crypto bug had bitten, there was no way back from the edge of sanity, since nobody really understood, not least the pundits. Despite another shopping spree, my general enthusiasm slowly dwindled, the ETH venture-bus it seemed had already left the station.

About 18 months ago I was surprised to see BTC mainstreaming again, as Elon Musk put BTC on the Tesla balance sheet only to retract his support upon climate issues. Along with running jokes about Dogecoin, the proverbial FOMO had kicked in and I once again found myself feverishly investing my precious ZAR via an exchange called Luno. A small R6k investment rocketed up to R30k, but then hearing a tax consultant on the radio going on about capital gains and ‘BTC being taxable by SARS’, FOMO turned into FOCO (Fear of Cashing Out).

The past month has seen absolute carnage in the market, beginning with the Luna-Terra fiasco (two algorithmic ‘stablecoins’) and the latest Celsius debacle, followed by cryptoworld gobbledygook, ‘Eth1 stakes caused ETH to dislocate from BTC’, leading one to question the fundamentals. (Read about problems associated with another regulated stablecoin Tether here). Which brings me to my conclusion. Yes, blockchain technology is useful and yes we can thank the new wave of maths wizards for giving us fractional investment schemes, but like all monetary experiments, one needs to take the good and leave the bad.

I started investing in real-world securities because I learnt about balance sheets and underlying net asset value. I got involved with mainstream capitalism out of an urgent need to escape the wild-west of crypto and online investment scams, and can thank the cryptophreaks for introducing me to tradable indexes like the Top-40, All-Shares and S&P 500.

Does this mean I still want BTC on my balance sheet?

Not while its below USD 21 138,60 (as I write this) and heading towards 16 000,00 like a falling knife. When the Crypto-winter ends, another 12 months, I might just get back into the market, but for now, I need more predictable, less volatile financial instruments, dare we even call these assets?

If you consider BTC to be a measurement of confidence in the world of crypto (not a play on anonymous transactions cast as a commodity — nor even a Casinocoin gamble?), or a bit like the VIX is a fear index, then it may be an asset class for some. If you see the future of intellectual property as a play on blockchain, going long on BTC and Holding On for Dear Life (HODLing) may still turn out a winning strategy.

But for now, crypto schemes, despite their utility, are resulting in lay-offs and uncertainty.

Check out this video:

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