Cryptocurrency

If you’re reading this in El Salvador, you’re probably taking a break from street protests against President Nayib Bukele’s adoption of bitcoin as legal tender, enacted last week. This small, heavily indebted Central American republic abandoned its own currency, the colón, 20 years ago in favor of using the US dollar — and has enjoyed relative financial stability ever since. The populist right-wing president’s insistence on shifting to the unregulated, ultra-volatile virtual currency favored by gamblers and money-launderers will supposedly bring savings of $400 million a year in commissions on the remittances from expatriate workers on which his economy depends.

When I was in high school, I worked at an ice rink in the winter and a swimming pool in the summer. My friends toiled at Target and gofered at golf courses, making minimum wage and spending it on gas and low-rise jeans from Abercrombie: it was 2008, after all. These days, gas may still cost $4 per gallon, but now the jeans are high-waisted and the teens are more ambitious. My youngest brother Ted is 18. He spent the summer before his first year in college working in a cheese shop, sweeping floors and straining ricotta: a classic summer job, tedious and stress-free. Yet some of his friends are taking a different route. Ted’s buddy Tom just cashed out $3,000 in bitcoin winnings to buy a weeklong Airbnb in Ocean City, Maryland for all his friends.

Companies should willingly pay tax wherever they generate profits — this column has long argued — because it’s fair they should contribute to the cost of the public services on which all business ultimately relies, and because the reputation of capitalism as a whole is tainted when corporate tax bills are reduced to absurdly low levels by the use of offshore domiciles and spurious royalty payments that most governments lack the willpower to challenge. So I welcome at least one half of the G7 finance ministers’ agreement last weekend on a new global corporate tax regime. The half I’m ready to praise is the proposal that all countries should have the right to tax some of the locally generated profits of the world’s largest multinationals.

If you’re looking for proof we live in a computer simulation, consider the farcical story of dogecoin. Named after an internet meme about a talking dog, the joke currency was created as a parody of bitcoin. Dogecoin has no practical uses, yet online investors have ploughed billions into it. ‘We thought it would just make the viral rounds on social media,’ said founder Jackson Palmer. Last week the valuation passed $68 billion — more than Kraft Heinz and Ford. Palmer is now worth several hundred million dollars. Not bad for a Twitter gag. Although it’s seven years old, dogecoin wasn’t a big deal until a few months ago, when supportive tweets from Elon Musk, the world’s richest man, fuelled an explosion in popularity.

'This time next year Rodney, we will be millionaires.' If Only Fools and Horses was still being made I imagine the scriptwriters would have got Del Boy disastrously deep into cryptocurrencies. Dodgy, Get Rich Quick schemes, skirting around the law always were his forte. And that is how I view cryptocurrencies.  The bulls will cry, Louise you are wrong! The price of Bitcoin has doubled since the start of the year and up over 500 per cent in a year. The value of rival cryptocurrency Etherium has risen more than 1,500 per cent in the last twelve months. But cashing in depends on buying and selling at the right time and there's no telling when that will be. The price of Bitcoin and other cryptocurrencies is highly volatile. And that is why it is risky.

No one likes to waste a good crisis, and the digital-payments industry is certainly trying its hardest to spin the narrative that COVID-19 is about to deliver the coup de grâce to cash. Various lobbying efforts culminated in a recent CNBC report claiming we have all switched to payment apps to avoid catching the disease from dollar bills. A ‘cashless customer’, Heima Sritharan, supposedly speaks for the entire millennial generation: ‘Not that I was using cash that much before, but I find that during Covid especially, I just don’t want to use cash as much because of the germs aspect.’ The report quotes a figure from the Pew Research Center suggesting that 34 percent of consumers under the age of 50 went the previous week without making a single purchase with cash.

To most of us, cryptocurrencies remain an esoteric world, beloved by nerds and incomprehensible to the rest of us. Does Visa’s announcement this week that it will now process payments directly in a cryptocurrency called USDCoin change that, and hasten us to a day when we will all have cryptocurrency accounts which we use to do our day-to-day shopping? You don’t need to understand the mathematics of cryptocurrencies and blockchain to work out that the prospect of shopping with crypto is rather concerning for two reasons. Firstly, cryptocurrencies are an unregulated Wild West.

The cryptocurrency winter has turned to spring: having slumped from $20,000 in late 2017 to $3,200 a year later, bitcoin has lately risen like a rocket to $8,800. Though it doesn’t change my negative opinion, I admit that if I had bought a fistful of these wacky gaming chips last October when I gave the crypto concept a kicking at our Spectator conference on the subject, I’d be up almost 40 percent. Evidently, hints from the US Federal Reserve and the European Central Bank that further bouts of ultra-low interest rates and quantitative easing may be in the offing have spurred what the FT calls ‘a rally in riskier assets’. Crypto is the new gold for those who distrust central banks and seek stores of wealth that governments can’t reach.