Note to readers: Hello world is a program developers run to check if a newly installed programming language is working alright. Startups and tech companies are continuously launching new software to run the real world. This column will attempt to be the "Hello World" for the real world.
George Goodman, the author of 1968 classic The Money Game, summaries the story of the Smiths who held IBM stock but never sold them, thus: ‘It is a parable of pure capitalism, never jam today and a case of jam tomorrow; but as any of the Smiths will tell you, anyone, who has ever sold IBM has regretted it.’
International Business Machines, the company, has been around for more than 110 years. If you discount a few ups and downs, it has delivered returns to shareholders year after year. So it’s no surprise that the Smiths were happy with their stock. Sometimes when the company underperforms, its stock goes down. Sometimes when the company performs well, its stock goes up. Analysts spend countless hours predicting the future value of such stock and billions of dollars ride on this. When you operate under such an assumption, investment decisions are relatively easier to make.
But lately, there’s another asset class that’s arousing the interest of investors once again. But it baffles most analysts. I’m talking about Bitcoins. Until a few months ago, it was the outcast among assets. Only hardcore cryptocurrency users and investors dared to dip their toe into the pool after the Great crypto crash of 2018. The price of Bitcoin had risen to an all-time high of $19,783 on December 17, 2017. Five days later, it fell 45 percent to $11,000. It continued its slide and fell to $5,500 on November 15, 2018.
Market watchers chalked up the 2018 crash to the regulatory headwinds faced by cryptocurrencies in different countries. Cryptocurrency exchanges were fraught with problems of theft, hacking, and instability. Many retail investors also lost money to Ponzi schemes disguised as cryptocurrency investments. In April 2018, India’s central bank banned cryptocurrency and trading slowed to a trickle. Several other regulators looked at it with suspicion.
But 2020 came bearing good news. In March, the Supreme Court of India struck down the crypto ban. Bitcoin has begun its rally once again. This morning, Coindesk reported that Bitcoin is trading at $18,062. Suddenly, it smells like 2017 again. Bitcoin has not seen this price point since December 2017.
This rally is mostly because of positive developments in the United States. Companies like MicroStrategy and Square have announced plans to invest some of their money in Bitcoins. The biggest of them is that PayPal has said that users can now hold cryptocurrency in their PayPal wallets. With PayPal’s announcement, there’s hope that Bitcoin will finally be used as a currency to pay for goods and services. This could potentially lead to the creation of a real Bitcoin economy that has some correlation to its trading price.
In a few years, the currency may yet become of interest to the Smiths and not just investors who are willing to take extraordinary risks with the volatility of cyrptocurrencies. In the meantime, the industry needs to build trust, educate potential investors, and genuinely protect the interests of their investors by weeding out bad actors. As of now, it is a case of jam tomorrow. With the added possibility of going bad if not kept in a good jar.(Jayadevan PK is a former technology journalist and recovering startup founder. He now works with Freshworks Inc as an evangelist, focusing on efforts around brand building. He’s also a commissioned author at HarperCollins.)