“Bitcoin is only for the speculators” was my conclusion in December and I stick to that, happily proved at least temporarily correct by the recent slump in the price.
Bitcoin in numbers
Regulators clamp down
- China – banned domestic cryptocurrency exchanges in 2017 but now will ban offshore platforms. Financial institutions already banned from funding any cryptocurrency activity
- South Korea, where demand for Bitcoin has been so high that speculators there pay a higher price for Bitcoin than anywhere else in the world, is looking to regulate exchanges and now requires greater transparency when opening trading accounts.
- The US Securities & Exchange Commission has not allowed ETFs but has permitted Bitcoin futures which enable speculators to sell Bitcoin and profit from its downfall.
- Japan has granted Bitcoin the same legal status as other currencies. Last month it raided Coincheck, a Tokyo cryptocurrency exchange, after hackers stole a different virtual currency. Japan regulates some cryptocurrency exchanges but regulation is known to be light.
- In the UK, there are apparent plans for stricter regulations, but the FCA has done nothing other than warn consumers of the risks. However, the UK government has now chosen to launch an inquiry into digital currencies and aims to consider the risks, disruptive capabilities, benefits, business impact and potential for regulation. Unless the enquiry can move faster than the developments in cryptocurrencies and the blockchain technology it is likely that this will be out of date before the report has been written. It is, however, an opportunity for support for innovation and appropriate, not stifling, regulation.
Banks clamp down
As we previously reported on 5th February when the news broke out, Lloyds recently banned its customers from buying Bitcoin and other cryptocurrencies on its credit cards. In a “big brother” move, you now can’t use your Lloyds, Bank of Scotland, Halifax or MBNA credit card to load up on cryptocurrencies. Lloyds is, of course, protecting itself from potential liability when customers are unable to pay their debts due to cryptocurrency price falls. It won’t be long before other banks follow suit. Good news for shareholders. This followed moves in the US where JPMorgan, Citigroup and Bank of America stopped credit card transactions in cryptocurrencies.
Social Media outlets clamp down
- Facebook has banned all advertisements promoting cryptocurrencies, including Bitcoin. This is in response to scammers using Facebook to promote misleading financial products.
- Baidu (China’s largest search engine) and Weibo (Chinese “Twitter”) no longer allow Bitcoin and cryptocurrency advertising.
Transaction fees are rising and the network is slow
- Bitcoin is not a viable medium of exchange as transaction fees are too high and it takes too long to process a transaction.
- The Bitcoin blockchain can process just seven transactions per second, compared to 24,000 from Visa according to this article. Other cryptocurrencies are faster than Bitcoin but no one comes close to Visa.
- Bitcoin transaction fees vary widely. According to the website https://bitcoinfees.info the average transaction fee peaked at over $37 in December. It has since fallen back under $2. This is still too much for everyday spending.
Caroline Shaw CFA, MEng (Hons), Dip PFS, IMC, Chartered MCSI
Head of Fund & Asset Management
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