I hope the week has gone well for you. It certainly has for bitcoin speculators and Meghan Markle.
A raft of stories this week, but I wanted to clear something up from last week’s Autumn Budget newsletter: a clarification on the Enterprise Investment Scheme. I said that an investor holding shares in an EIS-qualifying company cannot now buy more shares in that same company and get the relief. That sentence should have read: “An investor who already holds shares in a company that now qualifies for EIS but didn’t at the time of their first investment cannot buy more shares in that same company and get the relief.” Please do get in touch if you have any questions or comments about that.
I hope you enjoy this week’s round-up.
BITCOIN HITS $10,000
Bitcoin hit $10,000 (£7,450) for the first time, and then $11,000 (£8,170). It’s also now more frequently googled than Jesus. There’s a lot of commentary out there and, of course, the problem with discussion of bubbles is that that discussion invariably becomes quite binary: bubble/not a bubble; sell/buy? But here are a few things to think about.
Fund legend Michael Novogratz, who called $10,000 in October, has said bitcoin could hit $40,000 at the end of 2018. “What’s different about these coins than other commodities… there is no supply response here,” he said to CNBC this week. “So it’s a speculator’s dream in that, as buying happens, there’s no new supply response that comes up. So every price move get exaggerated. It’s going to get exaggerated on the way up… it will get exaggerated on the way down.” There will be huge corrections, but there is some way to run.
Bitcoin has scarcity built into it – i.e. there will only be 21m available, with 4m left to mine. Fiat money is innately inflationary because the supply can be increased in response to demand, and this dilutes the unit. This, in turn, decreases demand which means it loses value over time. Does this mean bitcoin is deflationary and should thus continue to gain value?
This brings us onto the value question. Cryptocurrencies are not backed by an asset. Neither, of course, are the majority of fiat currencies today, but they do derive value from the absolute tripartite relationship between government, taxpayer and central bank. Who – or what – determines the social contract in the crypto world?
Finally, believing that bitcoin is the beginning of a world free from the state control of money is somewhat separate from bubble talk. We might all live through a revolution bigger than the creation of cities and taxation. But a bubble just needs to be pricked – and something like a major exchange being shut down would do it.
If you’re after more analysis, Preston Byrne’s blog is excellent.
STATE VS SILICON VALLEY
There is a big battle commencing in the US over net neutrality – the notion that all data online should be treated the same, regardless of content.
The regulatory status quo has, to date, preferenced Silicon Valley. But Trump’s government is now set to repeal the net neutrality laws enacted by the Obama administration. Mud is already being slung: this week, the chairman of the Federal Communications Commission, Ajit Pai, accused Twitter of being politically biased. Meanwhile, the Valley-dominated Internet Association trade group has said ending net neutrality is an effort to defy the will of millions of Americans.
A straightforward argument against net neutrality is that having one agent (the regulator) codifying a principle is at best unnecessary and at worst anything but neutral. Markets deal with wrongdoers because customers, even on the internet, can choose to go elsewhere. And regulation limits competing business models by favouring existing players, which is never good for customers because it caps innovation.
Silicon Valley contrarian Peter Thiel (the Libertarian PayPal billionaire who supports Trump) described net neutrality regulations as an example of “the cure being worse than the disease”. He, incidentally, has just parted company with accelerator Y Combinator, and sold the majority of his remaining shares in Facebook.
As governments and companies get bigger, so too will the battles between them. Antitrust, tax and net neutrality are just the beginning.
PEER-TO-PEER PHILANTHROPY FOR KIDS
This week, I discovered Daymaker, a two-year-old American company that allows kids to give to kids. Working with schools and charities to identify disadvantaged children who could benefit from, say, new school shoes, a birthday present or something to play with during school holidays, it enables other children to log in with their parents, find a reason to give, someone to give to, and make the donation. The platform is also being used by corporates as part of employee giving programmes.
I’ve written before about P2P evolving to “individual to individual” – where both sides, whether it’s lender and borrower or donor and beneficiary, can connect over shared interests, ambitions or outlook. This is what Daymaker allows kids to do via recipients’ profiles. Imagine if we did the same for adults.
WHAT ARE WE READING AT OFF3R HQ
If you’re looking for a decent read, or Christmas present, the OFF3R team can vouch for Capitalism Without Capital, by Jonathan Haskell and Stian Westlake. This new book examines the nature, and growing role of, intangible capital in the economy, and is well worth a read.
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