Commentary: Don’t trust the hype – Bitcoin will never be a wise investment

The sooner Bitcoin and other DLT-based cryptocurrencies are relegated to a footnote in economic history, the better, says Willem H Buiter.

FILE PHOTO: A Bitcoin digital currency ATM shop is seen in Marseille

FILE PHOTO: A Bitcoin digital currency ATM shop is seen in Marseille, France, February 7, 2021. REUTERS/Eric Gaillard/File Photo

NEW YORK CITY: In a recent commentary for the Financial Times, economist Dambisa Moyo makes a case for why business leaders should invest in Bitcoin.

Her three main arguments are that Bitcoin is a way to mitigate company risk; cryptocurrencies can provide possible solutions for doing business in emerging economies; and digital currencies augur an exciting new future of “currency platforms”.

Is Moyo right? Let’s take her points in turn.

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First, it is unclear how buying Bitcoin can mitigate company risk. The only risk Moyo identifies is that of missing out on what could be one of the greatest speculative bubbles of all time.

True, a company that missed out on a continued Bitcoin appreciation could face dire consequences – including acquisition by a Bitcoin-invested rival. Obviously, investing in Bitcoin is one sure way to avoid missing out on capital gains on Bitcoin.

But that hardly makes it a wise investment, especially when one weighs the potential returns against the high risk of material capital losses.

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CRYPTOCURRENCY NO SOLUTION FOR EMERGING ECONOMIES

Equally far-fetched is the idea that cryptocurrencies could provide solutions to problems often encountered in emerging economies.