In an interview to CNBC, Mark Mobius warned about blockchain technology. He said, “A lot of people say, ‘blockchain can’t be broken into.’ No, it can be. Anything that’s created by man can be broken into. And it could create a big crisis.” Since President Trump’s tariff shot in June last year, bitcoin has gained 41.4%. Bitcoin has outperformed the S&P 500 Index (SPY), the Nasdaq 100 (QQQ), and gold by 32.6, 30.4, and 24.4 percentage points, respectively. So far in 2019, bitcoin has risen 176%. However, bitcoin’s volatility is also high. Such a high return in bitcoin could point to a bubble similar to 2017.
Cryptocurrencies don’t have any inherent value. However, the top-class security derived from blockchain technology made hacking practically impossible—the main reason behind the rising popularity. According to Mark Mobius, any threat to a security system could wipe out billions of dollars. In the second quarter, only bitcoin’s market cap was around $205.4 billion. The cryptocurrency wallet provides a “non-custodial” feature. The wallet is maintained and owned by an individual. As a result, people can secretly store their wealth.
Understanding Trump’s crypto bubble
During the trade war, growth and fiat currencies outside the US declined. Since June 2018, the Chinese yuan weakened 11.4% against the US dollar. As a result, the US dollar got stronger against other global currencies excluding safe-havens like the Swiss franc and the Japanese yen. On Tuesday, the US dollar touched the highest level in the last two years. Central banks across the globe are reducing interest rates due to the global slowdown.
Lower interest rates have a negative impact on currencies and people’s wealth in terms of the US dollar. Gold prices have exceeded $1,500 and are near their five-year high. Even experts think gold will reach $2,000 very soon. A crisis like Argentina’s sell-off, Brexit uncertainty, and Hong Kong’s social unrest could have also contributed to rising interest in alternative investments like cryptocurrencies and gold.
According to Mark Mobius, Hong Kong is important for the US-China trade deal and diplomatic relations. Notably, when Hong Kong’s administration withdrew the extradition bill on Wednesday, news about US-China trade talks in October came a few hours later. The next day, Global Times editor-in-chief Hu Xijin hinted about a possible trade deal. Mobius warned that another escalation in Hong Kong’s social unrest could have a serious impact on the financial markets.
Mark Mobius and libra
Facebook (FB) could launch its libra project next year. This week, the company recruited lobbyists to overcome the challenges for libra’s launch. According to Mobius, any security crisis in blockchain technology could threaten libra. Facebook announced a reward of $10,000 for anyone who could hack into libra.
Apple (AAPL) is also interested in the blockchain technology. Last week, in an interview with CNN Business, Jennifer Bailey, the vice president of Apple Pay, said, “We’re watching cryptocurrency.” She also said, “We think it’s interesting. We think it has interesting long-term potential.” On Thursday, Dan Ives from Wedbush Securities told CNN, “Given where Apple strategically is focused, a move into crypto could make sense given its sights on further monetizing its consumers over the coming years.” If Facebook successfully launches libra next year, Amazon and Google might also try to explore the business model.
Other fund managers’ views
Earlier this year, legendary investor Warren Buffett told CNBC, “Bitcoin has no unique value at all.” He’s a long term critic of investing in bitcoin. Ray Dalio doesn’t see cryptocurrency as a “storehold of wealth.” Jeffrey Gundlach has a similar view of bitcoin.