November 21, 2018 / 1:35 AM / in 24 days

Breakingviews - Bitcoin’s slide blows digital stardust to winds

Representations of the Ripple, Bitcoin, Etherum and Litecoin virtual currencies are seen on a PC motherboard in this illustration picture, February 13, 2018. Picture is taken February 13, 2018. REUTERS/Dado Ruvic/Illustration

NEW YORK (Reuters Breakingviews) - Bitcoin’s latest slide is blowing digital stardust to the winds. Many fans dreamed the cryptocurrency would consign conventional finance to the dustbin, but a drop below $5,000 is proving it to be more vulnerable than stocks and bonds to investor funk. Bitcoin’s flaw remains its lack of fundamental value.

Since it was created nearly a decade ago, bitcoin has captured the fantasy of technologists and libertarians alike. It promised a world of frictionless finance, with consumers and companies sending money whipping around the world without the predations of banks or governments. Its sudden surge last year to nearly $20,000 pulled skeptical investors off the sidelines and fueled the issuance of hundreds of would-be imitators.

That now all seems woefully premature, if not misguided. The initial coin-offering boom turned bust this year as regulators like the U.S. Securities and Exchange Commission cracked down on them, and the EOS network got embroiled in a governance dispute immediately after raising a record $4.2 billion.

Meanwhile, the luring of conventional investors appears to have backfired. As many as 150 hedge funds dedicated to cryptocurrencies will be launched this year, publication Crypto Fund Research predicts. Most of them, though, will already be nursing big losses, having bought closer to the peak. The recent selling - bitcoin has plummeted by a third in a month and is 75 percent off its peak last December - has the air of investor capitulation.

There is no shortage of reasons to unload. Bitcoin cash, which developers hived off from bitcoin a year ago to foster faster transaction times, split itself into rival currencies earlier this month. Christine Lagarde, head of the International Monetary Fund, called earlier this month for central banks to consider issuing their own currencies, which could overshadow bitcoin. And the broader investing climate has taken a harsh turn with fears of trade wars and higher interest rates causing prices of stocks and bonds to drop.

With a fresh fall of nearly 2 percent on Tuesday, the S&P 500 Index was down 10 percent from its September high. That’s punishing for investors, but S&P 500 companies grew earnings by nearly 29 percent in the third quarter, according to I/B/E/S data from Refinitiv, and are expected to continue to expand profit in 2019. Such a real-world support is something bitcoin fans can only envy.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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