A few weeks ago I was asking a rhetorical question: What interests inflate the price of Bitcoin ?, in a post that followed another one entitled Is Tesla’s investment in Bitcoin a smokescreen? Both noted that high-profile businessmen and businesses and more recently respectable financial institutions seem to go out of their way to campaign for investing in cryptocurrency. Were these efforts based on a rational, balanced argumentation that would make room for sensible and not emotion-driven decision-making, the case would stand. But it’s when the line of reasoning used by reliable and professional institutions becomes “flimsy”, that a series of questions emerges.
For lack of a better explanation, this immediately takes me to a trend that I have noticed throughout my career as a financial analyst where reports of financial institutions, big or small, started to encourage a certain tabloidisation of financial research reports. In an ever-growing competition for investor attention, bombarded daily with tens of reports, unorthodox approaches breaking out of the mainstream became an increasingly popular tool. The reasoning embraced by some analysts was that ‘investors will never remember how accurate your analysis was, but how innovative and out-of-the-box your ideas were. You need the wow factor to be worth reading’.
A Financial Times article announced that a new respectable institution put its name on the aforementioned list: Deloitte. Basically, the Considering the benefits of crypto report explores a number of commercial reasons in favour of crypto and explains the technical and operational side of using crypto. But, as the title suggests, despite regular disclaimers, the report is not balanced as it underestimates the substantial risks associated with the use by business of such a fickle asset. This level of volatility may be fatal first of all to small-sized companies tempted to ‘keep up with the trends’ and grow fast. Crypto could deliver a devastating blow to them.
As FT noted, some claims can only cause the savvy to raise an eyebrow. For instance, pointing out that despite the fact that 2,300 companies in the US use cryptocurrencies to say that “many retailers accept bitcoin” is debatable given that number accounts for only 0.007% or 7 in 100,000 US companies.
A Deutsche Bank report, cited by Business Insider, stated that Bitcoin will most likely remain ultra-volatile due to its limited tradeability. This makes Deloitte’s argument that one advantage to crypto lies in its control over capital and protection against inflation, ignorant of cryptocurrency’s extreme volatility and its destabilizing impact on business operations, sustainability and intrinsic value. In a nutshell, it can easily lead to insolvency and bankruptcy, two words carefully avoided.
Associating cryptocurrency with the e-currency to be issued by central banks is equally unfortunate. I covered the differences between the two in a very interesting and edifying talk with the former vice-governor of the National Bank of Romania, Mr. Cristian Popa.
“If it is too good to be true it probably is” according to one of Murphy’s laws on … love. Emotions have no place in business not even when it comes to cryptocurrencies.
Have a nice weekend!
