Constant dollars

Bitcoin FOMO is here | The week

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A “heated” debate over Bitcoin has divided the financial world into feuding camps, Shawn Tully told Fortune. Its value has risen 89% in the past three months to exceed $ 66,000 per coin last week. Supporters insist Bitcoin is a “roaring” inflation hedge and say it’s “just the first step in a moon shot.” Skeptics, on the other hand, see a Bitcoin bubble as the most extreme example of the euphoria that is pushing markets up across the economy. “Many of the same prominent investors who saw the 2008 financial crisis coming” see Bitcoin as little better than a Ponzi scheme, Michelle Celarier told New York magazine. Their warnings, however, are not heeded by cryptocurrency speculators who think “these are just old guys who can’t help but wage the glorious last war.”

The launch of the first two exchange-traded Bitcoin funds in the United States last week allowed crypto to further integrate into the mainstream, Michael Mackenzie said at the press conference. Financial Time. They got SEC approval because they hold “Bitcoin futures contracts traded on the Chicago Mercantile Exchange, a fully regulated venue, rather than outright digital coins.” It sounds like a safer investment. Unfortunately, this is not the case, as futures contracts can “underestimate the returns” of the underlying assets. One example is the giant United States Oil Fund, Michael Wursthorn told The Wall Street Journal. Over the past 10 years, “crude oil prices have gone up and down sharply, but basically ended where they started.” Meanwhile, by betting on short-term price changes, the fund lost 80% of its value.

The problems with Bitcoin go beyond the chances of individual investors losing their money, Ben McKenzie and Jacob Silverman told Slate, because investing in crypto is as risky as sitting at the blackjack table. Most Bitcoin trading takes place in Tethers, a so-called stablecoin whose value is believed to remain constant. Investors can buy Tether coins for $ 1 each and use that currency on other digital exchanges, much like exchanging dollars for tokens in a casino. Tether claims to have $ 69 billion in reserves, but investors have no way of confirming this. If Tether were to collapse or face a major regulatory crackdown, “the liquidity of the market would likely dry up, and a lot of people could lose a lot of money” – including some people who didn’t think their investments were at all. were linked to Bitcoin.

Bitcoin’s return to an all-time high comes “after an approximate 53% drop earlier this year, with volatility far exceeding that of gold or equities,” Lionel Laurent told Bloomberg. And the truth is, no one really knows what makes them tick. Amid all the Bitcoin hype, any bad news, such as doubts about Tether, “just don’t register.” A smart hedge fund manager left his Bitcoin stance, saying he just didn’t understand this. “He’s not alone. One thing is certain: speculators large and small are “climbing the crypto ladder in an attempt to follow or beat their peers.” As more and more people embrace the ‘Bitcoin gospel’, the FOMO (‘fear of running out’) frenzy only grows – and the risks increase with it.

This article first appeared in the latest issue of The week magazine. If you want to read more, you can try six risk-free issues of the magazine. here.


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