The Economist has proposed a parallel between cockroaches and crypto-assets, speaking in particular of Bitcoin (see the video from January 25th, What do crypto and cockroaches have in common?). It is very difficult to rid a house of cockroaches, despite using the most diverse methods. You can kill with slippers (screw itin the Roman dialect) some cockroaches: but the insects have already deposited hundreds of eggs in some hidden corner of your home.
Likewise, the financial system is not getting rid of Bitcoin. There is evidence of fraudulent use of Bitcoin for money laundering and terrorist financing (estimates of the weight of these activities on total Bitcoin operations differ among scholars). Changpeng Zhao e Sam Bankman Fried, the founders of the two largest platforms in the world for purchasing crypto-assets (Binance and FTX), have judicial troubles serious ones – especially the second one – for having violated the laws.
But the Bitcoin cockroach does not seem to be affected by these facts. Indeed, the price of Bitcoin is increased in recent months, despite the scandals that have affected crypto-assets, particularly in 2022. At the end of 2023 the price of Bitcoin had returned to above 40.000 dollars, after the collapses of 2022. In 2024 the price gradually over $ 60.000 (as a result of this growth, FTX's creditors will perhaps recover part of the sums invested).
Capitalization and market shares of cryptocurrencies
There are thousands of crypto-assets in the world, very different from each other. Theirs will be at the beginning of July capitalization it was around 2.000 billion euros (a figure comparable to the Italian nominal GDP of 2023); it is estimated that the Italian slice of this cake is under 3 billion. Below we focus on Bitcoin because its capitalization is around 50 percent of that of the total cryptocurrencies. After Bitcoin, Ethereum has a market share of approximately 18 percent of the total; followed by Tether, with a share of 4 percent and BNB, with a share slightly below 4 percent. The other cryptocurrencies have small market shares and soon become negligible when scrolling through the ranking of instruments looking at capitalization.
Why did Bitcoin rise in 2024?
The main explanations of growth of the price of Bitcoin in 2024 there are three.
Firstly, since 2023 the expectations of a decrease in interest rates by central banks have pushed up the value of many assets, both financial and real.
Secondly, in January 2024 the SEC, the US federal government agency responsible for investor protection, similar to our Consob, approved the possibility for investors Exchange Traded Funds (ETF) – funds that usually replicate the changes in the value of a group of securities – to buy Bitcoin. In a nutshell, even US ETFs can now invest directly in crypto-assets (see The economy for all, January 2024). The news is important, given the size of the American financial markets.
Thirdly, in April 2024 the expected took place halving of Bitcoins: the reward for mining a block dropped from 6,25 to 3,125 Bitcoins. The halving takes place approximately every four years. Halving the reward reduces the number of Bitcoins that are added to the total number in circulation (each time a block is closed), producing a consequent increase in the unit value. Unlike cockroaches, which are increasing in number, Bitcoin's maximum supply has been set at 21 million and will be reached in more than a century; To date, over 19,7 million have been created.
In 2020 the English writer Ian McEwan published “The Cockroach”. In the novel, a cockroach wakes up to find himself transformed into the Prime Minister of England. McEwan pays homage to the story "The Metamorphosis" (1915) by Franz Kafka, reversing its mechanism (this year marks 100 years since the Bohemian writer's death). McEwan peppers the story with Jonathan Swift-style dark humor (if there's an excess of poor children, a good idea to solve the problem is to sell them to the rich). Although the novel does not have the strength of the writer's previous masterpieces, McEwan achieved his main goal: the radical attack on the quality of the ruling class of England responsible for Brexit.
Beware of Bitcoin: invest with great caution
In making its decision on crypto-assets and ETFs, the SEC reiterated that it does not approve or support Bitcoin as a form of investment, inviting investors Investors to the caution. We don't want to be as bad as McEwan against roaches (whatever form they take), but we are in line with the SEC. Crypto-assets are not money; they do not perform well as a unit of account, means of payment and stable store of value. And, contrary to what some observers claimed after the SEC's decision, it cannot be said that Bitcoin is comparable to a financial asset as we have known it to date (a new asset class). The fluctuations price of Bitcoin depend only on expectations of how the price will move in the future. Bitcoin is similar to a bet, not to an investment in securities and shares of companies, of which we can analyze past behavior and evaluate future prospects (naturally without forgetting the inevitable uncertainty of valuations). Betting and investing do not sit at the same table. Bitcoin has no intrinsic value and its price is more volatile than that of stocks or gold.
Furthermore, while forms of protection are in force for financial assets, these do not exist for all crypto-assets. The protections introduced recently European regulation – Market in Crypto Asset Regulation (MiCAR) – are valid for crypto-assets similar to electronic money (e-money tokens) or for private digital assets whose value is linked to a basket of real or financial assets (asset referenced tokens). Such protections they don't cover Bitcoin; for its issue or offer there are no authorizations from the authorities or supervisory rules. They should then be remembered problemi di sicurezza: to give just one example, if the user who bought Bitcoin loses the access key to their wallets, they have no way of regaining possession of the sums used.
Risks and alternatives
New analyzes emerge not only on the high concentration of Bitcoin ownership but also on the risks resulting from the concentration of mining activity (Igor Makarov and Antoinette Schoar, “Blockchain Analysis of the Bitcoin Market”, NBER working paper, October 2021). The 0,1 percent of miners – around 50 in the world – control almost 50 percent of the total mining capacity. So an attack on blockchain of Bitcoin, which requires control of 51 percent of the total mining power, could be carried out by a small number of people.
La distributed ledger technology (DLT) lends itself to different applications, from notarial archives to the management of supermarkets, from public land registers to the sharing of digital music. Those attracted by the technology underlying Bitcoin - the blockchain, a particular case of DLT - can find financial instruments issued by many companies - financial or industrial - active in the distributed ledger technology sector on the markets, without being obliged to buy the crypto-assets .
In particular the small savers they should keep away from Bitcoin. Or, if you really want to bet, everyone should divert sums that they can afford to lose towards crypto-assets, as we never tire of repeating in the Financial Education Portal of the Bank of Italy The economy for everyone.
