By Harry Mottram: In 1637 investors in Dutch tulips experienced one of the worst market crashes of all time. The price of tulips had soared to incredible prices as investors deluded themselves they would become rich as a type of mass market hysteria took place pushing the price of the bulbs to insane levels. Until the speculators decide to sell and found nobody wanted to pay such high prices. The market collapsed back to the levels of what tulip bulbs were actually worth for gardeners and florists.
With cryptocurrency’s current woes in mind following another massive dip in values and the collapse of FTX the magazine Private Eye recalled the saga of the sardine tins. The anology goes that back in the mists of time there was a boom in the price of sardine tins. Investors quickly piled in to see the value of their tins increase to unprecedented levels. One buyer was so intrigued – was it a shortage or a new fashion for tinned food? He opened one of the tins and inside he discovered there were… er… sardines. The tins he was told were for buying and selling – not for opening.
The hype around cryptocurrencies has not been helped by celebrities and politicians bigging up the virtual currencies in a market that is unregulated. And that’s the key. We may have concerns about the behaviour of banks and financial institutions but they are regulated by Governments – as yet there is no international agreement on how to bring cryptocurrencies to book.
Rishi Sunak and former Chancellor Phil Hammond have all got into bed with the currency – either by endorsing it as in Rishi Sunak’s case or becoming the chairman of Copper cryptocurrency in the case of Phil Hammond. To give some context as to the dangers of thinking cryptocurrencies have the same reliability and stability of a currency just look what has happened in El Salvador where the Government adopted Bitcoin as legal currency and invested half of the Government’s cash in it. Bitcoin’s value is down by 75% in the last few months. Investment bubbles can make fools of us all – theree was the famous South Bubble in the 18th century and more recently the dotcom boom – it seems we will never learn.
Ian Carrotte of ICSM said there is a legitimate interest in cryptocurrencies and there’s no reason why not a small business shouldn’t invest some cash in them. But as you expect there is a ‘but’ coming from the CEO of the group dedicated to preventing bad debt. He said: “But you should never invest more than you can afford to lose – treat it as a hobby and you can’t go wrong. Invest all your cash in it and look what has happened to FTX. Hundreds of thousands of people around the world have lost everything – to the tune of £32 billion pounds. That’s why caution is the watch word.”
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