A financial report this week celebrated the launch of another cryptocurrency, this time a new LGBTQ-focused coin that aims to “fight homophobia.”
If it takes off, the Maricoin, a name that Reuters reported is derived from a homophobic slur in Spanish, could be the kind of niche token that will survive in a very competitive space. Its founders hope so.
Since many who have introduced their own coins have made fortunes, there is certainly plenty of competition. But for people converting their hard-earned cash into crypto tokens, that raises an annoying question.
Even if crypto tokens do have utility and real value – which remains controversial – and if those tokens can be infinitely reproduced, which is what blockchain mathematicians say, why are so many traded as if they were scarce?
As cryptos proliferate, informed skeptics fear a nosedive could destabilize conventional markets.
Is there really a shortage?
The supply of a crypto, such as B. Bitcoin, may be limited by the algorithm that generates the tokens. But if you need something that behaves like a bitcoin, experts I’ve interviewed say there are plenty of options.
According to CoinMarketCap, known as a credible source for crypto data, 16,394 different crypto tokens were being traded on 451 different exchanges at last count, valued at just over $2.2 trillion.
For whatever reason, Maricoin had not yet created the CoinMarketCap list (although you can find it elsewhere), indicating that the figure of 16,394, while large, could be an underestimate.
Giant electronic billboards display advertisements for cryptocurrency investment companies in a London Underground station in 2018. Since then, the number of cryptocurrencies has exploded to over 16,000. (Simon Walker/Reuters)
Many credible financial authorities say it’s uncertain whether cryptocurrencies will ultimately have any real purpose that justifies buying an equity stake. Others are far more dismissive.
A recent report in the Financial Times called them “worse than a Madoff-style pyramid scheme.” Finance professor George Athanassakos’s advice on Bitcoin in the Globe and Mail’s Report on Business was “just say no.”
Not as good as a barter unit
Henry Kim is part of a team of about 20 at York University’s Digital Currencies project working on crypto and blockchain – the complex mathematics that makes each cryptocurrency unit unique. He says the electronic tokens haven’t been as useful as hoped so far.
“Bitcoin’s intended purpose of being used as money has limitations,” said Kim, an associate professor.
As many people, including myself, have pointed out in the past, the value of tokens has gone up and down wildly, meaning few people are willing to make trades settled in Bitcoin. Also, Kim said that with rare exceptions, central banks frown on using it as actual money.
Kim, who holds a crypto holding in his personal portfolio and generated a non-fungible token (NFT) of his dog Smudge to sell for 0.01 Ether as a teaching exercise, said the only proven value of crypto so far is “electronic gold ‘ for a crisis when other assets fall in value. And he says this only applies to the most commonly traded examples, with Bitcoin and Ethereum topping the list.
As a teaching exercise, Henry Kim, a blockchain expert at York University’s Schulich School of Business, created an NFT of his dog Smudge using the same tools used to preserve crypto tokens. No bidders yet. (Henry M Kim)
“Bitcoin is a finite resource, it’s a digital asset, and for very similar reasons people own gold… You can make the same argument as to why you would own Bitcoin,” Kim said.
I’ve argued in the past that just like gold, the value of any crypto asset is what someone will pay for it, and as long as the markets decide it has value, it will have value. But with no other core purpose worth mentioning for the crypto units, that seems like circular reasoning to some critics.
One way to keep those valuations high is to convince more new investors to get involved. Actor Matt Damon has garnered attention on places like Twitter for doing just that, appearing in a sophisticated online ad for Singapore-based cryptocurrency platform Crypto.com, comparing investors to past risk-takers, with the slogan “Fortune favors the brave.”
Seeing Matt Damon in a crypto ad wasn’t something we had on our game map for 2022… pic.twitter.com/9tCEXrvEqT
—@WhatsTrending
In another sign that Crypto.com is reaching a wider investor audience, news this week from The Wall Street Journal that the company is planning a promotional blitz, including a commercial at next month’s Super Bowl. It has already paid $700 million for the naming rights to the former Staples Center arena in Los Angeles.
For some, that might be a red flag, like tales of shoeshine boys tipping stocks before the 1929 crash that crypto investing is becoming a bit too democratized. But if so, analysts at New York investment bank Goldman Sachs aren’t worried. According to a Bloomberg report, they say digital assets are not just becoming like gold, they are stealing gold from investors.
But Canadian fintech expert Ryan Clements is concerned about the flood of money into so many different types of unregulated and speculative cryptoassets.
Rather than being a new egalitarian form of trading, Clements said that in any case, a large portion of the wealth is held by the private “whale” founding investors who “could exacerbate a crash through sell-offs.”
Accident waiting to happen
Clements, a securities attorney-turned-assistant professor at the University of Calgary who advises Canada’s investment regulators on cryptocurrency, sees the market as an accident waiting to happen that could impact the entire real economy.
And while it might be possible for governments to track down and regulate a limited number of cryptocoins, what he calls the process of “infinite synthesis and imitation” means that in the growing spectrum of electronic tokens traded on international platforms, there is no shortage.
He says there is little evidence that “payment” cryptos like bitcoin and its many, many imitators are widely used as a legal payment mechanism.
And while there are potential uses for so-called “utility” crypto assets similar to Canadian-invented Ethereum, such as B. providing credit or other financial products, Clements says that’s not yet the way they’re being used.
“We’re seeing a lot of interest in crypto right now because people think the price is going to go up,” Clements said. “You have capital flows chasing returns in an asset class that has no underlying economic purpose.”
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