Bitcoin is useless AND worthless, says HAMISH MCRAE: Digital currency will sink to zero
Well, we were reminded of one thing in the past week. Bitcoin isn't a great store of value. It is not, as some enthusiasts claim, a form of digital gold.If you have the misfortune of holding any you bought in the past 15 months you have lost money. At one stage on Thursday it was at less than half its peak of $122,200 in October last year. The Bitcoin bubble has been popped.However, we were reminded of something else. There will always be buyers of a dream, at least until that dream is shattered.The world's biggest cryptocurrency did manage a decent recovery on Friday as the 'buy on the dips' advocates moved back in.Maybe there are enough dreamers to sustain that rally for a while. But we must contemplate the real possibility that Bitcoin and all the other cryptocurrencies are worth nothing at all, and think through what that will mean. Nothing at all? That's the view of Richard Farr, chief market strategist at Pivotus Partners, a US market research group. He has set a price target of zero for Bitcoin and said so publicly. Sinking feeling: If you have the misfortune of holding any Bitcoin bought in the past 15 months you have lost moneyAs you might imagine that has caused quite a stir, but I think he is right. There's no intrinsic value to any of these so-called currencies. There's no income, no assets. All that's behind them is the belief of people who hold them.I can't give a date but I'm confident that, in the fullness of time, Bitcoin will indeed be worth zero.What's more, I am confident that this would bring huge benefits to our shaky financial system, and the world economy as a whole.Here's why. The function of our market economy is to generate wealth by taking savings of ordinary people and parcelling them into a form that generates investment and hence drives growth.The mechanisms vary. If you put money in a bank or a building society it goes into mortgages or loans for firms – or most of it does. If you own shares in a firm you directly or indirectly support the activities of that enterprise. We should cheer if Bitcoin and the rest of them bite the dust. They are socially useless You can even argue that if you buy government securities, gilts here in the UK, you are paying for the investments that the Government is making on our behalf, even if too many of those investments are poor ones, such as HS2.Now, it's true that the mechanics of our capitalist system are imperfect. In 2009, as the financial crash unfolded, Lord Adair Turner caused a stir by saying the financial sector had become too big, and that much of what went on in it was socially useless.He had taken over as chairman of the Financial Services Authority watchdog, having been head of the Confederation of British Industry and vice-chairman of Merrill Lynch Europe.Some felt he was rather biting the hand that had fed him. But he was courageous and he was right. The financial system had become overly complex, and it was duly punished for its excesses.It is easy to see imperfections now. But mainstream finance is doing its basic job of financing investment, notably by supplying the wall of money going into the high-tech enterprises building and deploying artificial intelligence, and even more controversially, into Government spending.But at least there is something there. With Bitcoin there isn't.That's why we should cheer if Bitcoin and the rest of them bite the dust. They are socially useless. Inevitably some people would be hurt, there would be knock-ons, and that is not nice.But it is hard to see the financial system as a whole being threatened as it was in 2008-9. Bitcoin isn't big enough to do so. Its market capitalisation is $1.4 trillion (£1 trillion), and that of the entire crypto-currency world less than $3 trillion. For context, US equities are worth $70 trillion.There's danger, of course. But there won't be an overall market meltdown. The central banks know how to pile in and stop that.Most important of all, would be the positive impact of the end of cryptocurrencies on the financial system as a whole. It needs risk-takers, but now and again their enthusiasm fuels excess.Cryptocurrencies are not the only manifestation of that excess, but they are part of it. We need the socially useless parts of finance to be beaten down to keep the vital elements of it sweet.DIY INVESTING PLATFORMSAJ BellAJ BellEasy investing and ready-made portfoliosHargreaves LansdownHargreaves LansdownFree fund dealing and investment ideasinteractive investorinteractive investorFlat-fee investing from £4.99 per monthFreetradeFreetradeInvesting Isa now free on basic planTrading 212Trading 212Free share dealing and no account feeAffiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.Compare the best investing account for you
