Another Roubini claim is that crypto hasn’t delivered significant value except to a few criminals. True, there has been no crypto-application that has touched the lives of more than a few million people, and even then mostly in areas that are either silly or circular, or that facilitate controversial peer-to-peer transactions. Although I think it will be five years before crypto is a significant part of a hundred million people’s lives, it has already caused change by liberalising attitudes toward transactions that both buyer and seller desire. (Full disclosure: I own bitcoin and other cryptocurrencies.)
I claim grudging agreement from Roubini on my big point. 1 There’s a crypto-universe unrelated to the dollar price of bitcoin. The code base is increasing and improving every day. The flow of top developers is still strongly out of traditional tech and into crypto. Computer science graduates from top schools are signing onto crypto because they find more fulfilment changing the world than hoarding other people’s data and selling ads. 2 Add to that enormous contributions from open-source developers who are pure altruists.
So what’s the problem? We have a bunch of technophiles slaving away on a speculative vision of the future, which most of us don’t understand well, but whose potential is causing financial regulators and institutions to up their games. That’s all good, whether crypto causes a social revolution or never progresses beyond vapourware and a few niche applications. The problems crop up when crypotcurrencies get exchanged for dollars. This has led to fraud, flouting of securities laws, delusional promotions, boom and bust. 3 Roubini thinks that’s all it has led to, but I think that beneath the fuss there has been slow and thoughtful progress toward peaceful coexistence of crypto and traditional finance.
One possibility is that the crypto-universe will run independently of traditional finance, but that would require it to become self-sustaining, and it’s nowhere close to that happening. Another possibility is that a method of exchange will evolve that brings in enough dollars to pay developers and electricity bills, but avoids fraud and allows the vast majority of crypto to circulate for its intended purpose rather than be hoarded or dumped based on its dollar price fluctuations.
Should you invest in crypto? For Roubini, the answer is a resounding no. For D’Agostino, it’s dangerous but careful investors can find attractive situations. I think it’s appropriate for 0.5 per cent to 5 per cent 4 of one’s portfolio, but only for those willing to take returns in the things they will be able to purchase with crypto. Buying crypto is like buying a residence. It might or might not make you money in dollar terms, but if you’re happy living there — taking your return in the asset itself rather than its value — it can be an unbeatable investment.
1. His reply was only, “They're not all altruists,” which is the most you can hope for from someone known as “Dr. Doom.”
2. They want good salaries plus the chance to get rich, of course, but by directly building something of value, not collecting stock grants from a giant corporation in which they play a tiny role.
3. I accept D’Agostino's estimate that 80 per cent of ICOs are frauds, 12 per cent were already failures at time of issuance, and only 8 per cent are ideas that remain viable. Roubini actually quoted this in the debate, but D'Agostino pointed out that he supplied the estimates.
4. I use 2 percent myself, and have since 2013, but I have no strong basis for that calculation.