Written by 6:43 pm Bitcoin

Bitcoin has rallied – what are crypto’s true believers still smoking? | Nils Pratley

As fraud and conspiracy charges were laid against FTX founder Sam Bankman-Fried in the US on Tuesday, a funny thing happened to the price of bitcoin: it went up.

Since bitcoin is still a handy barometer of sentiment in the whole crypto universe, one must assume that more than a few punters saw headlines about “one of the biggest frauds in American history” – the US attorney for the Southern District of New York’s description of Bankman-Fried’s alleged crimes – and decided this was just the moment to top up their bets.

Bitcoin has still plunged in value by almost two-thirds this year, it should be said. But it has also rallied by about 10% since the downwards lurch when FTX filed for bankruptcy in mid-November, which is extraordinary. One has to wonder: what are crypto’s true believers still smoking?

A popular narrative says a few accidents (to grossly understate the significance of FTX’s failure) are merely to be expected in the early years of a multi-decade financial revolution. The odd trading exchange might go pop but, hey, the most popular digital tokens should survive. And, when regulators eventually impose a few rules in crypto’s wild west, mainstream respectability will be secured, runs the theorising.

This cheerful spin sounds delusional. Whether or not Bankman-Fried is convicted, FTX looks an existential event for the crypto trading fad. As mediums of exchange in the real world of goods and services, none of the digital tokens has achieved lift-off, aside from their use in “terrorism financing, tax avoidance and sex trafficking”, as JP Morgan chief executive Jamie Dimon put it on CNBC last week.

As stores of value in inflationary times – the “digital gold” idea – they’ve flopped. And they yield no income, obviously. That leaves cryptocurrencies as tools of pure speculation, a pitch with limited appeal if it is proved that $8bn worth of customers’ assets are missing from FTX.

Yes, the firm smack of regulatory discipline may eventually force the creation of exchanges with proper governance structures that follow know-your-customer rules and don’t entwine their operations with hedge funds or lending vehicles. By that time, though, one suspects the get-rich-quick crew will have moved on to something else. Tulips were big until they weren’t.

The underlying blockchain-based technology should still have useful financial applications, it is usually obligatory to point out, but the fall of Bankman-Fried feels like the moment when grown-up thinking re-enters the room. “Crypto is a complete sideshow” and crypto tokens are like “pet rocks”, Dimon also said last week. It was a boring and conventional thing for the boss of a big bank to say, but also surely correct. A new class of asset, as we normally use the term, has not been created.

Good luck to the buyers and holders of bitcoin at $18,000, but you have been warned (again).

A big idea blossoms from small energy savings

A saving of £2.8m is tiny in the context of the many extra billions that UK households will be spending on energy this winter, but good ideas can have small beginnings. National Grid’s “demand flexibility service” – the scheme to incentivise us to use our tumble dryers and other appliances outside peak hours – is one such innovation.

The company, as operator of the electricity network, was merely running a series of limited trials to establish that the flexibility setup works – thus the small number. But the response by consumers seems to have beaten expectations; and the fact that 1m households and firms have signed up to participate in any wider rollout suggests there is appetite to save a few quid.

From the Grid’s point of view, the arrangement is about shifting demand to meet supply. There will clearly be limits to how much balancing and fine-tuning can be achieved in practice, and the job of setting financial incentives may prove to be more art than science. But it does all sound like an outbreak of common sense, as well being a small return on the hideously expensive rollout of smart meters.

It’s just a shame it took an energy crisis to get it going. A proper national insulation would provide a far bigger improvement in energy efficiency, of course, but that’s not Grid’s look-out.

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