The Crypto Drop: Two Opposing Perspectives — Hoxton Capital Management

The Crypto Drop: Two Opposing Perspectives

Last week crypto saw a large sell off triggered by the news that Tesla would stop accepting Bitcoin as a payment method due to its negative impact on the environment, and China discussing stricter measures against crypto currencies. Some cryptos dropped in value by almost 80%.

The Enthusiast’s Perspective — Paul

‘Bitcoin has been on a wild ride recently with the added media hype that surrounds times when people lose or make a lot of money. The difficulty with bitcoin is that there is not a fully diversified ownership holding within the asset class. This causes a problem when there are large holdings held by a few investors. In the bitcoin universe these individuals are called whales. Typically, when these whales are active in the market, they have the ability to move the market in large quantities and in particular when they make a market move during weekends when trading volumes are thin this is exacerbated.

The Sceptic’s Perspective — Andrew

‘I don’t actively want people to lose money, and everyone I know is ‘invested’ in crypto. So, I am not hoping that they crash but frankly I see no other alternative. To date, not one single person has been able to clearly explain the value of crypto to me. Usually, it ends up being something about new world orders, hyperinflation on fiat currencies etc. But it seems to me that it in fact has no value other than a speculative one, except to those involved in criminal activities. Imagine you are a business that decided to accept payments in Bitcoin, and you sold a product worth $100,000 on the morning of the 19 thMay. By that afternoon you’d be in the grips of fear as the Bitcoin you accepted is only worth around $70,000 and unless your margins were huge, you just made a significant loss selling that product. I can’t see what type of business, other than a criminal one, would be willing to accept that level of risk on their balance sheet, and that in my opinion, makes crypto a fundamentally worthless asset. In fact, I would go so far as to say that you shouldn’t be allowed to use the word investing when talking about crypto, as it adds false legitimacy to what is actually gambling.

Hoxton Capital Management is a borderless, independent financial advisory consultancy.

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