By John Rothans
Economists are now comparing bitcoin’s valuation tumble to the infamous dot.com nosedive of the late 1990s, with Bloomberg even labeling it a “bloodbath.”
The king of the cryptos has dropped about 70 percent from its December high because of a combination of increased regulations and a rash of cyber-heists.
But bitcoin is not the only digital currency that’s crumbling. Ethereum is down 66 percent since January. XRP (Ripple)has plummeted more than 85 percent, and Litecoin has slipped almost 78 percent since December as values have plunged across the cryptocurrency landscape. In a single weekend last month, virtual monies lost over $42 billion. Over 800 digital currencies have now been declared “dead,” and there have been so many coin deaths that multiple websites are now solely dedicated to compiling cryptocurrency obituaries.
So what happened? Within the cryptocurrency community, there has been nothing short of an Initial Coin Offering (ICO) contagion. According to CNBC, almost $4 billion was raised via digital ICOs last year. In 2018, that number has already tripled. Let’s not forget that an ICO is a means of raising capital whereby digital tokens are issued via blockchain to fund future business development. But the current lack of regulation results in an associated lack of transparency, and the big-dollar hype has left the ICO system vulnerable to manipulation and misrepresentation.
Some ICOs, like MintCoin, WorldCoin, and Paycoi neither crashed, burned, or simply never came to fruition. Others like Visacoin, NeonCoin, and SureCoinwere scams that pinched millions of dollars from unsuspecting investors. Familiar stories of disappearing programmers, money laundering, and foreign Ponzi schemes have been popping up in cryptocurrency chat rooms across the internet. According to BitcoinNews, some $9 million a day is lost to cryptocurrency scams. That’s about $3.25 billion a year.
To be sure, no one is suggesting that blockchain does not have a place in modern society. Despite his dramatic crackdown on bitcoin trading and his complete ban of cryptocurrency websites, even Chinese President Xi Jinping calls the digital ledger technology a “breakthrough.”Along with logging electronic currency transactions, the benefits of blockchain extend to supply chain management, payment processing, recordkeeping, and anything that lends itself to automation or decentralization.
When it comes to other movers and shakers, cryptocurrency sentiments fall into two distinct camps. Firmly in the “love” camp is British billionaire and Virgin Group founder Richard Branson, an early adopter who put up some $30 million for bitcoin payment processor BitPay back in 2014. His Virgin Galactic now accepts bitcoin for roundtrip travel to space.
Venture capitalist and early Facebook executive Chamath Palihapitiya is an enthusiastic bitcoin supporter who bought in at a reported $100 per coin and boldly predicted that the digital currency will reach $1 million each.
In the “less fond” faction, there’s Microsoft founder Bill Gates who has called ICOs “a greater fool theory,” and when reportedly given a bitcoin for his birthday, he promptly sold it.
Warren Buffett is more acerbic in his bitcoin version and maintains that the lure of cryptocurrencies has more to do with bewilderment than sound judgment. At the Berkshire Hathaway 2018 annual shareholder meeting in May, he referred to bitcoin as “rat poison squared.”
Still—for all the billions of dollars they hold, cryptocurrencies are fraught with uncertainty. A feature article in TechCrunch recently read, “Cryptocurrencies have an Everything Problem.” Indeed, they have been plagued by skyrocketing fees, chronic hacks, prolonged wait times, government crackdowns, mass regulations, heavy energy consumption, and premature death.
The antithesis of all this, of course, is the real coin market—meaning physical coins that you can touch, hold, and store in a tangible place. A one-ounce American Silver EagleCoin, for instance, is issued by the United States Mint and carries a 99.9-percent pure silver guarantee.
Unlike the virtual currencies of today, silver has been around since ancient times and was vital to earlier civilizations. It was not only a means of trade and coinage but also used for adornment, jewelry, tableware, and food storage.
Today, silver has positive market demand both as a financial asset and an industrial metal since it has thousands of uses in manufacturing, electronics, medicine, water purification, dentistry, printing, photography, and solar energy. Global demand has also been steadily rising for silver jewelry, particularly in the U.S., India, and China.
The last time I checked, you can’t wear bitcoin around your neck. Nor can you use it to start a car, take a photograph, or light a town. And unlike what some governments have done with cryptocurrencies, no government has ever banned silver or shut down its trade—nor has any scammer ever hacked it or “ponzied” it.
This makes references to “cold storage,” wallets,” and “mining” in the cryptocurrency dictionary all the more revealing—virtual coins are desperately trying to mimic real ones. But to quote Coca-Cola’s celebrated1969 slogan, bullion coins are “the real thing.” And right now you can buy almost 400 solid American Silver Eagles for the price of a single, and virtual, bitcoin.
John Rothans is Master Numismatist at U.S. Money Reserve, America’s Gold Authority. As one of the country’s largest distributors of U.S. government-issued coins, U.S. Money Reserve strives to provide clients with the highest level of service, as well as the most exceptional gold coins on the market.