As published in The Sunday Times, 24 January 2021.
Article by Graeme Lennox.
As the value of the world’s most famous digital currency
soars amid economic uncertainty, Graeme Lennox asks if now is a
good time to invest in cryptocurrencies. Featuring head of our
cryptocurrency and blockchain group, Andrew Tzialli.
It has been called “digital gold” and has been most
synonymous with drug dealing, ransomware and inept criminals, as
well as innocent investors losing fortunes in lost hard drives.
Whether bitcoin is the best get-rich-quick scheme in town or the
next financial bubble waiting to burst, is usually just a matter of
opinion – but either way, investors have been on one hell of a
rollercoaster ride this past fortnight.
Values of the world’s most famous digital currency have
risen by more than 700% during the pandemic, as economic
uncertainty spreads. Bitcoin prices exploded at the end of 2020,
doubling in less than a month before reaching a peak of $42,000 on
January 8. Values have since fallen back amid fears the newly
inaugurated US president Joe Biden will seek tighter regulation,
but remain at about ?26,000 a coin.
For every story of life-changing fortune, though, there is also
a tale of heartbreak. In 2013, Welsh IT worker James Howells
accidentally threw out a hard drive containing the keys to 7,500
bitcoins. At the time, they were worth around $5m. Now, they would
be worth more than $250m.
Meanwhile, San Francisco-based programmer Stefan Thomas received
more than 7,000 bitcoins as payment for making a video on how
cryptocurrency works. They cost between $2 and $6 at the time, but
could now be worth up to $220m. Having realised he was sitting on a
fortune, Thomas has entered the wrong password on his hard drive
eight times and has just two chances left before it encrypts itself
and he loses everything.
Cryptocurrency data firm Chainalysis estimates about 20% of the
18.5 million bitcoins in circulation are either lost or stranded in
inaccessible wallets. Meanwhile, Wallet Recovery Services, a firm
specialising in finding lost digital keys, says inquiries from
bitcoin owners have tripled in the past month.
Lory Kehoe, adjunct assistant professor at Trinity College
Dublin and founder of Blockchain Ireland, has been approached by
several desperate Irish investors in the past week who have lost
digital wallets containing bitcoin fortunes. “We’re not
talking ?240m, but one guy has lost ?500,000 moving bitcoin between
wallets,” he says.
“He called me asking for help saying his wife was crying in
the background. Often the problem is people are looking in the
wrong place. The user interface is not as good as something like
Revolut and it’s easy to make things look like they have
vanished when in fact they haven’t.”
Kehoe, who previously set up Deloitte’s Europe Middle East
and Africa blockchain lab and headed up blockchain technology
company ConsenSys, has first-hand knowledge of the perils of
cryptocurrency.
“In 2014 I ended up buying a few at a very affordable
rate,” he says. “It was nothing life changing, but I was
in New York in 2016 and went to pay for lunch with a friend using
my Bank of Ireland Mastercard. For some reason it didn’t go
through so I repaid her in bitcoin. That $50 lunch has cost me
$35,000 now.”
Invented in 2008 by a person or group of people – no one knows
to this day – using the pseudonym Satoshi Nakamoto, bitcoin was an
attempt to create a decentralised digital currency, but was viewed
by some as a way of moving illicit money without being traced.
With bitcoin’s value slowly nudging towards ?1 trillion,
cryptocurrency is now considered a valid investment tool, with
hedge funds and banks steadily getting on board in recent
weeks.
There are more than 3,000 cryptocurrencies in total and amateur
investors often fall prey to fraudsters posing as cryptocurrency
exchanges. Andrew Tzialli, a partner in venture capital and
corporate technology for Dublin-based legal firm Philip Lee,
regularly receives inquiries from private investors who have been
scammed. “Often, they have bitcoin with an investment group
they found online that is no longer responding to calls,” he
says. “We dig into them and what they thought was a crypto
firm based in Ireland is actually based in Cayman, Panama or
Russia.”
He believes cryptocurrency is here to stay but needs proper
regulation if it is to be taken seriously. “I have been
working in the sector since 2013 and have tremendous faith in it,
but I’d still rather bet my mortgage on gold,” Tzialli
says.
“I know a lot of people who bought bitcoin in 2013 when it
was ?300. It crashed soon after and they sold up, so now most of
them are crying into their empty wallets.
Bitcoin was an attempt to create a decentralised digital
currency
“Interest levels are high right now because the value has
gone through the roof. Regulation is in its infancy but people see
the value go up and don’t think twice about the risk. The
reality is even the legitimate firms have provisions in their terms
and conditions saying your money is not secure.”
Joshua Goodbody, regional director at Binance says the firm has
seen a record surge of activity during the pandemic, as investors
hedge against turbulence in traditional markets. “They have
watched governments printing record amounts of money and are
conscious that inflationary pressures are growing,” he says.
“We have seen with volumes hitting a record daily high of over
$80bn in the first few days of the year. Alongside this we have
seen record numbers of new users.”
With some analysts predicting bitcoin value to exceed $100,000
by the end of the year, Kehoe understands the clamour to jump on
the bandwagon. “Fear of missing out is a big factor,” he
says. “In October, when Paypal got involved in bitcoin, I told
people to watch this space. It was around the $11,000 mark at that
stage and then the billionaires and hedge fund guys started
investing parts of their portfolios in it.
“We’re seeing global banks providing crypto services to
their clients. I think bitcoin could be worth anywhere between
$50,000 and $100,000 by the end of 2021.”
With financial firms deserting London in droves following
Brexit, Kehoe says we are ideally placed to take advantage.
“It’s a huge chance for Ireland Inc to become a European
cryptocurrency hub,” he says. “We already have reputable
exchanges like Coinbase, Revolut and Gemini based here.
“When one company of that nature comes, others
follow.”
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