‘Bitcoin delusion’: Singapore fintech warning
A big player in Asian Fintech, Sopnendu Mohanty or Singapore’s monetary authority (MAS), has talked to the Daily Telegraph about a bitcoin delusion. His views have the potential to shake confidence in cryptocurrency in South East Asia where Singapore is the leading fintech hub.
The main reason behind Mohanty’s views on the bitcoin delusion are around perceived and intrinsic value structures. He says: “Bitcoin has no intrinsic value. Can you buy a house with it? Can you use it for daily interactions? It may be valued at $18,000 right now but what I want to know is how you convert it into fiat currency and realize that value. The risk comes at the moment of conversion.” Of course, as we have reported on before, there are plans in place to respond to precisely that, for a potential revolution in real estate. Plus, of course a lot of the early hesitation with Bitcoin and other cryptocurrencies is their use in transactions for illegal purposes. While those purchases may not be legal, they do transpire in a tangible transaction.
Mohanty also suggests that there is a significant contrast between Bitcoin and Ethereum. Ethereum, he says that at least it “has economic value. You can exchange ether to run software in the cloud.”
Perceived and Intrinsic Value
Perceived and intrinsic (sometimes referred to as market vs actual) value are tricky customers when it comes to currency. Normally these terms are discussed in relation to the value of a business; what assets does the business have? vs. what are people willing to pay for it right now. The perceived value is largely defined by supply and demand: low supply but high demand will push the price right up even if the cost it takes to produce is low. iPhones sell for $1,000 but the cost to produce is very low; the value that customers perceive it to have are what gives it the hefty price tag.
Currency is similar. A common way to explain this is: let’s say $5 is currently worth £3. When the government wants to increase export trade, they may announce that the same £3 can now buy $8, thereby enabling overseas businesses to buy more and stimulate exports. However, this may then see the value also plummet because people in-country believe that their dollar is worth less than before. So the perceived value impacts the actual value.
Furthermore, regulated currencies the world over aren’t held against gold, as they used to be. So where is the intrinsic value, aside from the enormously complex economic systems that exist between nations?
So is there a bitcoin delusion?
Bitcoin doesn’t exist in a vacuum and hasn’t transpired out of nowhere. Perceived value in a digital world is enormously powerful. Undoubtedly, there’s something in Mohanty’s views, which Bitcoin may need to address – particularly in relation to the contrast between bitcoin and ethereum – but ultimately, economy and currency are changing and the rules aren’t set in stone yet. More is yet come and we’re willing to bet on Mohanty being wrong in the long run.