Millions of people have bought into the idea that cryptocurrencies could make them rich, fast. But these booms are fake, say economists, and they may now represent a systemic risk.
There is a narrative among the Bitcoin faithful that what they have bought offers not only investment potential, but freedom from the powers that dominate government-issued “fiat” money. Cryptocurrencies are described by their fans as a people-powered revolution, digital banking unchained from the interests of the wealthy and powerful.
This may well have been the original intention. But the modern reality is that almost all Bitcoin investors own less than one per cent of one Bitcoin. These “retail” investors make up more than 75 per cent of addresses, but own a tiny fraction - 0.22 per cent - of the market. The top 100 Bitcoin accounts own more of the currency than the bottom 38 million. In the crypto economy, businesses and wealthy individuals control currencies more actively than any central bank. They do so not to maintain the market, but to further their own interests.
Through successive booms and busts, the price of Bitcoin has been manipulated by a handful of large players, using fake transactions, imaginary assets and sophisticated timing. In doing so they created real demand, as celebrities and financial institutions responded to the attention and encouraged millions of people to gamble money on a product they barely understood, in the hope that it would make them rich.