So there’s excitement about its real-world potential as well as simply the investment opportunity?
Yes, though it depends who you’re asking. Some people see it simply as an investment; some see it as an investment with some desirable qualities. Elon Musk, for example, probably sees Bitcoin as a good investment opportunity – I mean, he’s the world’s richest man, so he’s not someone who doesn’t care about money – but also sees its objectives as good.
Can you give us an example of the good Bitcoin can do?
It can be used to fund social or protest movements in which authoritarian governments block protesters’ bank accounts. In the protests against police brutality in Nigeria last year, human rights organisations had their accounts shut and the only way for them to transfer money was Bitcoin. This was its original intended use; it’s just it now also has a big chunk of institutional (or quasi-institutional) investors.
Bitcoin broke yet another record when it’s value passed $60,000 earlier this month. Are we looking at a bubble or something more permanent?
I'm not an economist, but I’m always very worried about using the word bubble in relation to anything, and especially in regard to cryptocurrencies and Bitcoin. Yes, there have been peaks and troughs, but it keeps on rising. That doesn’t mean the price won’t burst at some point, but I will call it a bubble once that happens, not before!
You mentioned the peaks and troughs. Why is its price so volatile?
That’s a matter of very deep investigation in some quarters. There are a few things to mention here. First, there are online exchanges and secondary markets where cryptocurrencies can be traded very easily and quickly, so trades are much faster moving than with other assets. Second, there is no monetary policy that underpins cryptocurrencies, which means the market tends to respond very quickly – and quite extremely – to events or news that is perceived to be positive or negative. You also have to remember that just a few key players hold a lot of the reserves of Bitcoin. If one or a few of these ‘whales’ suddenly decide they don’t trust Bitcoin anymore or think its price will fall, they can have a big impact by selling a chunk of their investment. I also think there is a certain amount of intentional manipulation of the price going on.
Tell us more about that manipulation… You’re not talking about Elon Musk moving the market, are you?
I would never dream of accusing the world’s richest man of such a thing! He is an interesting case because everything is so transparent: he must know when he speaks or tweets that a lot of people are going to follow his guidance, but when he’s playing around like that on Twitter, at least we can all see what’s going on in real time. I was really referring to big, faceless cryptocurrency traders who are dumping one cryptocurrency, then buying another in order to move the prices. Because of the concentration of ownership in cryptocurrencies like Bitcoin, it’s certainly possible to do this.
Are there any other cryptocurrencies we ought to know about?
One of the other popular ones is Ether, which is traded on a platform called Ethereum. To put it optimistically and perhaps too simplistically, it’s a blockchain that has the potential to create smart contracts that can be the basis of self-running businesses. Ethereum is also the platform where a lot of the experimentation with digital art I mentioned earlier is happening.
There’s also Tether. This is a different sort of cryptocurrency because it’s run by a company, so the decentralisation element disappears. You get one unit in exchange for one unit of a currency (a dollar, for instance) and you can effectively trade your virtual dollar on cryptocurrency platforms. When you’ve finished playing around with it, you can convert that unit back into a dollar. Because it has a baseline value, it’s relatively stable amid the volatility. For example, if you make a lot of money in Bitcoin, you can transfer your Bitcoin into Tether and theoretically – because we don’t actually know if the company has a dollar for every Tether it issues – you can lock in your money as if it was dollars.
Tell us about the major cryptocurrency platforms…
I don’t own any Bitcoin or other cryptocurrencies myself, so I’m not speaking from direct experience, but from reading around the subject, there are a few exchanges that are big enough, established enough and pretty much transparent enough that you will not be outright swindled on them as a first timer. Coinbase is the big one, then there’s Gemini which is run by Mark Zuckerberg’s old friends, the Winklevoss twins. This is probably where I would start.