Yeah, it's those Coutts again. I don't mind. I don't mind at all. I'll let them have their say ...
Bitcoin believers versus sceptics
Bitcoin fever is being called both an epochal step change that will positively transform the world of finance for ever and a speculative bubble that will inevitably end in tears. The volatility in Bitcoin's value is representative of the conflict between these points of view.
At the heart of the debate is the idea that the cryptocurrency derives its value from its use as a payment system - a new and improved Visa or PayPal - and as a new form of fiat currency. How well it provides advantages over these may well be the defining factor in whether Bitcoin is a good investment.
Okay, okay. 'No mention of Mikeycoin, boss.' Why would they mention it, Voice? That's an old joke. Leave it alone. Please!
A better way to pay?
As a payment system, Bitcoin is a way of getting money from one person to another, rather than a currency itself. So, when you buy or sell Bitcoins to make a transaction, you are in fact trading the tokens attached to Bitcoin's payment protocols. These tokens can then be converted back into the native currency of the buyer and seller in the transaction.
Rather than having a central clearing house - like those used by traditional payment systems - Bitcoin has a decentralized network of 'miners' that contribute processing power to make transactions. Miners are rewarded for this service in Bitcoins; processing a certain number of transactions yields a Bitcoin.
Ha! I don't understand this "mining" business. I mean, it's all in their imagination, ain't it? They don't actually go down a pit. They don't get their hands dirty, do they?
Okay. It goes on a bit, but I think I'll jump straight to the gold part -
The new gold?
According to its backers, Bitcoin, like gold, shares characteristics with both currencies and commodities. Like a currency, it can be exchanged with other cryptocurrencies and used as form of payment. Like a commodity it requires energy to extract ('mine'). And like gold, its quantity is limited and no government can inflate away its value by issuing more of it. Its value as money should therefore derive from its use as a store of value and as a medium of exchange.
However, in addition to the issues of transaction costs and trade confirmation times, its exponential rise has led to extraordinarily high levels of volatility. Its recent 30-day volatility (a standard measure of how risky an investment is based on the variability of returns) is above 120, compared to around about 6.5 for 30-day volatility of sterling versus the US dollar.
On some days, if you had ordered a book in the morning the value of the Bitcoin you used to pay for it could have fallen by a third by the time it gets delivered. This makes pricing items in Bitcoins a nightmare; vendors could potentially make huge losses, although some have probably made huge gains.
Either way, it adds a level of unpredictability to transactions that's clearly putting retailers off. The number of major e-commerce retailers supporting Bitcoin is low, and in fact declining.
Okay, okay. It's risky, then. And let's finish with this -
In the struggle between believers and sceptics, we remain firmly on the side of the sceptics. Bitcoin's value does not seem justified by its role as money, payment system or commodity and we struggle to assign a fair value to it. While some form of cryptocurrency might, in the future, co-exist with traditional currencies, it is our view that Bitcoin, in its current form is unlikely to be one of them.
Oh dear! / And that's that, for today. Because I'm not in the mood for anything else. 'Bad mood, Mikey?' Yes, bad mood, Voice. Where the hell is this summer?! Christmas is over. Where's summer now?
Right. Laters, you dig?
Bitcoin believers versus sceptics
Bitcoin fever is being called both an epochal step change that will positively transform the world of finance for ever and a speculative bubble that will inevitably end in tears. The volatility in Bitcoin's value is representative of the conflict between these points of view.
At the heart of the debate is the idea that the cryptocurrency derives its value from its use as a payment system - a new and improved Visa or PayPal - and as a new form of fiat currency. How well it provides advantages over these may well be the defining factor in whether Bitcoin is a good investment.
Okay, okay. 'No mention of Mikeycoin, boss.' Why would they mention it, Voice? That's an old joke. Leave it alone. Please!
A better way to pay?
As a payment system, Bitcoin is a way of getting money from one person to another, rather than a currency itself. So, when you buy or sell Bitcoins to make a transaction, you are in fact trading the tokens attached to Bitcoin's payment protocols. These tokens can then be converted back into the native currency of the buyer and seller in the transaction.
Rather than having a central clearing house - like those used by traditional payment systems - Bitcoin has a decentralized network of 'miners' that contribute processing power to make transactions. Miners are rewarded for this service in Bitcoins; processing a certain number of transactions yields a Bitcoin.
Ha! I don't understand this "mining" business. I mean, it's all in their imagination, ain't it? They don't actually go down a pit. They don't get their hands dirty, do they?
Okay. It goes on a bit, but I think I'll jump straight to the gold part -
The new gold?
According to its backers, Bitcoin, like gold, shares characteristics with both currencies and commodities. Like a currency, it can be exchanged with other cryptocurrencies and used as form of payment. Like a commodity it requires energy to extract ('mine'). And like gold, its quantity is limited and no government can inflate away its value by issuing more of it. Its value as money should therefore derive from its use as a store of value and as a medium of exchange.
However, in addition to the issues of transaction costs and trade confirmation times, its exponential rise has led to extraordinarily high levels of volatility. Its recent 30-day volatility (a standard measure of how risky an investment is based on the variability of returns) is above 120, compared to around about 6.5 for 30-day volatility of sterling versus the US dollar.
On some days, if you had ordered a book in the morning the value of the Bitcoin you used to pay for it could have fallen by a third by the time it gets delivered. This makes pricing items in Bitcoins a nightmare; vendors could potentially make huge losses, although some have probably made huge gains.
Either way, it adds a level of unpredictability to transactions that's clearly putting retailers off. The number of major e-commerce retailers supporting Bitcoin is low, and in fact declining.
Okay, okay. It's risky, then. And let's finish with this -
In the struggle between believers and sceptics, we remain firmly on the side of the sceptics. Bitcoin's value does not seem justified by its role as money, payment system or commodity and we struggle to assign a fair value to it. While some form of cryptocurrency might, in the future, co-exist with traditional currencies, it is our view that Bitcoin, in its current form is unlikely to be one of them.
Oh dear! / And that's that, for today. Because I'm not in the mood for anything else. 'Bad mood, Mikey?' Yes, bad mood, Voice. Where the hell is this summer?! Christmas is over. Where's summer now?
Right. Laters, you dig?
