Will Bitcoin Crash?
While driving to work to this morning I heard Saudi Prince Alwaleed bin Talal say on CNBC that he does not believe in the legitimacy of bitcoin and that “it’s just going to implode one day.”
He claims it is a scam similar to Enron that will one day collapse, leaving a lot of angry bitcoin holders holding an empty bag.
I happen to agree with the prince on that score, but I suspect we have very different reasons for thinking so.
Saudi Arabia will be selling a 5% stake in its Saudi Aramco oil company early next year. It hopes to raise $100 billion from the IPO, valuing the business at $2 trillion.
However, it isn’t just Saudi Arabia that is watching this deal closely. One of its biggest customers, China, also has a vested interest in how successful it is.
You may be wondering what bitcoin has to do with the price of “Texas Tea” in China. Turns out, perhaps a lot more than you realize.
There are three critical points to keep in mind regarding Saudi Arabia’s interest in bitcoin:
- First, China was the world’s second-largest consumer of oil last year, and the size of its middle-class population is projected to grow tenfold by the year 2030. Saudi Arabia was the world’s second-largest producer of oil.
- Second, no matter where oil is traded in the world it is always priced in U.S. dollars. That means countries that either produce or consume a lot of oil are vulnerable to a currency war with the United States.
- Third, China would like to have its currency replace the dollar as the international pricing standard for oil. That way it could use its central bank to keep oil prices in check.
Which brings us back to bitcoin.
My colleague, Dr. Stephen Leeb recently observed in Personal Finance, “Unlike conventional currencies, cryptocurrencies aren’t issued by, and can’t be manipulated by, central authorities.”
That means if oil starts trading in bitcoin there is nothing any country can do to control its price. That’s a scary proposition for China given bitcoin’s meteoric rise in value this year.
Bitcoin increases in value by 900% during past year
And if China can’t afford to buy Saudi Arabia’s oil then the economies of both countries could crumble, which explains why each of them is conducting aggressive media campaigns against bitcoin.
I’m not a fan of bitcoin either, but my concern has to do with the risk of a cyber-attack on the blockchain technology that is its foundation. Unlike government-issued currencies, there is absolutely nothing backing up the value of cryptocurrencies like bitcoin other than a complex computer code that is designed to be impenetrable.
I don’t know about you, but I have a hard time believing that anything sitting on a computer is completely outside the reach of hackers. My guess is Russia (the world’s largest producer of oil last year) is already working on that right now.
Why should you care about any of this? Because you and I and everyone else in the world will be impacted by how this game plays out even if we don’t own any bitcoin since oil prices influence the value of stocks, bonds, and other commodities.
The bottom line is this: Saudi Arabia is preparing to raise $100 billion pretty soon, and it doesn’t want bitcoin screwing that up.
Nothing to Sneeze at
Monday mornings aren’t much fun for anyone, especially shareholders of French drug company DBV Technologies (DBVT) whose stock lost nearly half its value after it announced over the weekend that a trial for its treatment of a peanut allergy fell short of expectations.
Peanut allergies are a serious problem, and potentially fatal for people with severe intolerance. The company’s skin patch releases very small amounts of peanut protein to the immune system to prevent an allergic reaction. Unfortunately, the test on 356 children aged 4 – 11 showed only minor improvement over a placebo.
However, one company’s loss is another’s gain as witnessed in the simultaneous 46% share price gain of its biggest competitor, California-based Aimmune Therapeutics (AIMT). The company is working on a pill that achieves the same result and will release its trial results in a few months.
The Root of all Joy
It looks like money can buy happiness after all. According to the website NerdWallet, studies conducted in several countries, including the United States, reveal that people with more money tend to feel more secure about their financial situation than do people with less money.
Okay, so that’s not much of a revelation. But what is interesting is that saving excess cash produces more satisfaction than does paying down debt with it even though the impact on a person’s net worth is the same.
Although the study offered several possible explanations for this outcome, I believe it’s as simple as this. Too much debt is potentially a problem later on, but not enough cash is definitely a problem now!