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Crypto is becoming increasingly cryptic and could become a…

The story goes like this. A long time ago I was asked to write a newspaper article about Bitcoin and I thought well I should buy one just to see practically how difficult the process is.

I identified a bitcoin platform backed by an Argentinian enthusiast who had started a Switzerland-based sales operation and was giving a very compelling podcast about bitcoin. His main argument was that bitcoin proved very useful to Argentine citizens trying to protect themselves from the vagaries of Argentina’s currency movements and the even vaguer vagaries of the Argentine government’s economic policies. You don’t have to be an expert on international politics or currency movements to see how appealing this can be to South Africans.

Those were the beginnings of bitcoin, right at the point where people started noticing. The platform required you to deposit through a bank in Slovenia. I don’t mean that disrespectfully towards Slovenia, but it made me a little nervous. Where exactly is Slovenia? And how does it relate to Slovakia?

However, after getting a foreign exchange permit, which was not difficult since the investment amount was tiny, I made the deposit. At that time, a Bitcoin cost around 10,000 Rand. Amazingly, the money showed up in my account, and on top of that, the platform sent me a Visa-based debit card linked to my unique bitcoin.

I made a great buying show with it in front of my colleagues, who now considered me an expert on cryptocurrencies because I actually had one. Those are apparently all the qualifications you need.

Much to my surprise, the bitcoin exploded in value and I promptly redeemed half of it to go fishing in Canada with some friends. This, I hoped, was just the sort of quirky thing one would do with a crazy profit on an unusual investment, made even more quirky by the fact that I didn’t catch any fish.

On my return from the fishing experience I felt so bad that I went on a trip without my wife, I gave her the other half of the bitcoin. Of course, bitcoin’s value exploded again immediately, and I had to argue that there was in fact an implicit sub-clause to the bitcoin gift contract that unfortunately limited its value.

Fortunately, our marital ties were saved after bitcoin then collapsed in value, although we still argue about who said we should sell and when. We happen to HODL our “investment”; Yes, right, hodle, not hold – like in “Holding On for Dear Life”.

The reason I am telling this story is because it is very difficult not to get carried away with the thrill of having made money from crypto.

There’s a weird hyper-personalized aspect to the whole thing; You are so proud of your lucky investment decisions that you are tempted to believe that they are somehow an implicit proof of your personal brilliance. It’s as if you are individually responsible for the success of the assets as opposed to all the people who actually work for a company and lead it to success, for example.

In the case of crypto, there is an additional strand that we should all distrust: the narrative. It’s one of our weaknesses as humans that we tend to believe in things that have a story behind them. And as far as stories go, crypto is just fabulous.

The Crypto story is based on three very compelling and worthwhile arguments. Crypto operates largely outside of the fiat money system. In other words, it operates outside the realm of government money printing systems. This doesn’t seem like a huge benefit for people living in first world countries with stable currencies, but if you’re Zimbabwean or Venezuelan then there can be times when it can be very beneficial to break away from the state system . But even for first-worlders, the potential protection against inflation inherent in crypto is something to ponder.

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Second, you have to think a bit about what money does in an economy. Money is magical in that it supports the circulation of goods and massively speeds up the process. Due to its international, digital nature, crypto at least has the potential to increase the speed of this circulation even further.

And third, the distributed ledger aspect of crypto takes the management of this circulation out of the hands of a single institution, which can be mismanaged, and into the hands of users, who are unlikely to mismanage their own wealth. The distributed ledger makes exchanges transparent and protects users from the failure of any institution or government.

Those are all great arguments. But we’re a little on track now: how do they stack up? The truth is, not so good. If the argument is that crypto will protect you from inflation, then the past year has emphatically disproved that. While inflation has skyrocketed around the world, crypto has slipped. Crypto appears to be much more correlated with the tech market than, say, gold, at least for now. That could change, but today it is a sign against crypto.

The second argument about the usefulness of crypto is taking a while to materialize. It’s not that the argument is invalid. I think it’s a bit like asking why mobile banking hasn’t gained traction in South Africa but in Kenya.

In truth, most SA citizens are fairly well served by the local banking system. But when mobile banking started in East Africa, it was actually quite difficult to open a regular bank account and make transactions.

Crypto could replace cash, but cash or cash equivalents like credit and debit cards get most people there for the most part.

The third argument has always been a bit flimsy for me because although the transactions on the ledger are transparent, the users themselves are not. There are ways to find out who the actual users are, but given that crypto is so popular in the underworld, its claim for enhanced transparency falls a bit short.

Crypto analyst Steven Boykey Sidley mocks crypto skeptics in this piece on Daily misfit, noting that there have been exactly 461 crypto obituaries in major news outlets over the past 12 years. We know the number because there is actually a page tracking every triumphant “crypto is dead” article. Look, his series on crypto is great.

I certainly wouldn’t place myself in that camp – I would love to see crypto succeed. My wife certainly. But I’m not worried now that it’s “failing,” just that it’s not progressing fast enough to keep the momentum going. If the only benefit of crypto is that it has the ability to appreciate in value, that’s just not enough in my opinion. It’s a bit like investing in a zero-coupon perpetual stock.

I might be wrong; This is the time of year to take a critical look at crypto since the value is so low right now. But I think crypto needs to prove its usefulness as a means of payment pretty quickly. The danger isn’t that it’s “dead,” it’s that it kind of gets boring.

The markets are now holding: The All-Share is back above 70,000. It’s just amazing the kind of abuse this market can handle and still keep going. DM/BM


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