The well-known executive considers the idea of putting taxpayer money into an asset that has been as volatile as bitcoin is “reckless”
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Prominent local financier Frank Giustra is among the critics cautioning Vancouver against incorporating bitcoin into its financial strategy, especially if it plans to hold any of its reserves in cryptocurrency.
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Mayor Ken Sim recently put a motion forward, which council approved, suggesting staff research whether Vancouver could become “bitcoin friendly,” taking payment of taxes and fees, or even hold some of its financial reserves in the cryptocurrency.
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But it would not be legal for a B.C. municipality to put any reserves, which are typically held for specific capital projects, into bitcoin, according to provincial legislation.
As city staff are researching whether Vancouver should consider the idea, Giustra is suggesting that it shouldn’t.
“I thought (the motion) was incredibly reckless and stupid, to be really honest,” Giustra said. “That the City of Vancouver, using taxpayers’ money, would put funds into bitcoin, an incredibly volatile asset class.”
Bitcoin has been in the spotlight in recent months as it has soared in value, reaching a new high of $105,987 US as of Monday.
Major U.S. investment firms have created investment vehicles, known as exchange traded funds, which allow people to convert dollars into the cryptocurrency, and U.S. President-elect Donald Trump has signalled his administration will offer favourable regulatory treatment to bitcoin holdings, which advocates argue support its value.
In his motion, Sim couched the discussion of buying into bitcoin as a means to “safeguard the purchasing power of its funds,” against the devaluation of holdings to inflation.
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Giustra, the CEO of the Fiore Group, which manages private equity and companies in natural resources and entertainment, said that bitcoin has not proved to be any kind of hedge against inflation since it has collapsed in value at intervals since its inception in 2009. He argues that advocates of the cryptocurrency gloss over a lot of the risks that remain.
“A year ago, bitcoin was trading at a third of its current value,” Giustra said. “And (it) has gone up and down over the years with tremendous volatility swings.”
“So, to use taxpayers’ money, I just thought it was a really a dumb idea, and I’m quite happy to say that in those words.”
Giustra, a well-known gold-mining financier, who, in 2021, took part in an online debate with leading bitcoin proponent Michael Saylor, acknowledged that on paper, bitcoin has been the best-performing financial asset of the last 16 years, if you only look at the start and end dates.
If he were to pick other dates, Giustra said he can show that gold proved to be a better investment, or even the penny stocks of speculative companies that trade on venture exchanges — “and I wouldn’t put taxpayers money into those either.”
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Bitcoin, as a digital currency, operates independently of governments, with new coins being created, or “mined”, by computers solving complex equations to unlock their value. Those solutions are independently verified by others via blockchain computation, as are transactions.
Proponents argue that the distributed nature of bitcoin technology helps protect its value over so-called fiat currencies, but Giustra argued that there is no guarantee that bitcoin’s underlying technology won’t eventually be surpassed by a better technology.
Another risk that Giustra said hasn’t adequately been considered is how bitcoin might perform in a currency crisis. When those have happened in the past, Giustra said countries impose capital controls that try to protect the value of their currency.
In the case of bitcoin, Giustra said, there would be nothing stopping countries from making it illegal to hold bitcoin or convert the local currency into or out of bitcoin.
That wouldn’t destroy bitcoin as a currency, but “you can shut off the on and off ramps, (which would) destroy its value,” Giustra said.
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To cryptocurrency proponents, Vancouver’s interest in at least researching the possibilities of bitcoin shows that the city is forward thinking, according to Michael Vogel, CEO of the venture capital firm Encore Ventures and founder of the cryptocurrency exchange Netcoins.
“I think these things have to happen small, but I think the more important thing is just the fact that they are (talking about bitcoin),” Vogel said.
Not that Vogel is advocating for the city to “bet the farm” on bitcoin, but it might be worthwhile to consider putting small amounts of its reserves into the cryptocurrency, considering that the value of its holdings in cash and bonds are eroded by inflation.
“(Talking about bitcoin) signals to the global community that at least the city government is aware of trends and they are open to embracing new technologies, new ways of thinking,” Vogel said.
“I don’t think the council would move ahead if city staff thought it was a bad idea,” Vogel added. “I think it’s just a review of proper capital treasury management and taking it into the current century.”
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To Giustra, however, the biggest issue is the amount of hype surrounding bitcoin and the sales pitches trying to convince new investors to buy in.
Giustra said people need to use real money to buy bitcoin, then “sell it for fiat (currency), and they’re trying to get rich.”
He argued that bitcoin started as a currency that would supplant government-issued currencies for making transactions, but that hasn’t worked out. Then proponents tried to sell it as a hedge against inflation, but its performance has shown to be the opposite.
“It’s an asset in search of a purpose and has no tangible anything to it,” Giustra said. “It’s just driven by the madness of crowds piling in.
“Everybody’s hoping to get rich, and (bitcoin) will have a very, very big correction when the stock market corrects. That was my entire point on it.”
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