Bitcoin is worth zero, African investors should beware ─Strategist

*Kenyan communications strategist Mwotia Ciugu has warned African investors to be cautious about investing in Bitcoin, which he claims is worth zero

*South African Finance Minister has presented proposals to bar pension funds from investing in cryptocurrencies

Alexander Davis | ConsumerConnect

Although the African continent reportedly has one of the highest cryptocurrency adoption rates, Mwotia Ciugu, a Kenyan communications strategist, has warned African investors to be wary of investing in Bitcoin which he claims is worth zero.

Ciugu stated that Bitcoin is structurally incapable of delivering on its promise, in an op-ed published by The Elephant in the country, Ciugu insists that Bitcoin (BTC) is structurally unqualified to become an alternative store of value or a hedge against inflation in an economy.

Besides, the strategist also claims that the cryptocurrency fails both as a currency and an investment.

Though he concedes that Africa has one of the highest cryptocurrency adoption rates in the world, he however, cautions investors that the top cryptocurrency’s volatility and scalability issues mean “it cannot act as a currency.”

Ciugu further explained: “Bitcoin fails as a currency because of two things: volatility and scalability concerns.

“In its 12 years of existence, Bitcoin has maintained extremely high levels of volatility, i.e., 60 percent to 100 percent annualised.

To further support this point, Ciugu makes reference to the United States (US) Dollar, which he claims “has an annualised volatility of 17 [percent].”

Concerning the crypto asset’s scalability problems, the expert predictably regurgitates the common arguments about Bitcoin’s inefficient use of electricity and how this disqualifies it as a currency for day-to-day transactions.

Bitcoin useful for cross border remittances?

Meanwhile, the Kenyan communication strategist yet denies that Bitcoin is now being used extensively in El Salvador, the first country in the world to declare itcoin legal tender.

According to Ciugu, the US Dollar is still the dominant currency in El Salvador. Despite putting forward these arguments, he surprisingly agrees that sending remittances via Bitcoin is more cost-effective than using regular sending channels.

He said: “The use of Bitcoin in that country is primarily for remittances by citizens working abroad to their families back home.

“These citizens rely on Bitcoin for cross-border money transfers to avoid the high costs that come with such transactions, and also because most citizens of El Salvador, i.e., 70 [percent], don’t have bank accounts.

Why the cryptocurrency is worth zero

On why he thinks the cryptocurrency is worth zero, Ciugu uses American billionaire investor Warren Buffet’s past comments about Bitcoin to argue his point.

In his previous remarks, Buffet had intimated the crypto asset had hallmarks of a pyramid scheme because it produces nothing.

Just like Buffet, the strategist also believes Bitcoin investors have no expectations of making any future earnings except through engaging in zero-sum games with other speculators.

Ciugu also referenced to how Bitcoin crashed when Elon Musk voiced his concerns about the crypto asset’s energy use.

Such a reaction, according to him, means Bitcoin is more susceptible to sentiments than actual fundamentals.

Nonetheless, the strategist by conceded in the piece that Bitcoin will probably hit the US$100,000 mark in the near future as some analysts are predicting.

Even if Bitcoin were to reach such a milestone, this will have “no bearing on the intractable truths,” Ciugu articulated in the editorial piece.

S’African Finance Minister moves to stop pension funds from investing in cryptocurrencies

In a related development, Enoch Godongwana, South African Finance Minister, has presented proposals that bar pension funds from investing in cryptocurrencies, and has also set November 12, 2021, as the public comment deadline on the matter.

Describing cryptocurrencies “a grey area” in a report by Business Insider SA, Godongwana’s timeframe for the public to comment on the draft proposals suggests he wants the changes to come into effect before the end of this year.

It was learnt prior to the Finance Minister’s proposals, South African pension funds considered cryptocurrencies a grey area where an investment of up to 2.5 percent of assets held was permissible.

However, as the Business Insider explains, this ambiguous part of regulations used by pension funds to legally invest in cryptocurrencies will be removed once Godongwana’s proposed changes get approval.

The report stated that “a (pension) fund may not invest in crypto-assets directly or indirectly,” the report explained, quoting new rules published in a government document.

The Southern African country’s Finance Ministry’s draft proposals suggest Godongwana is also seeking to expand the definition of cryptocurrencies to include ‘derivatives’, such as non-fungible tokens (NFTs) as well as any digital asset not issued by central banks.

In the report, Godongwana’s proposed definition of cryptocurrencies read: ‘[C]rypto-asset’ means a digital representation of value that is not issued by a central bank, but is capable of being traded, transferred or stored electronically by natural and legal persons for the purpose of payment, investment and other forms of utility; applies cryptographic techniques and uses distributed ledger technology.

SA regulators working to find right framework

As the report noted, Godongwana’s determination to stop pension funds from investing in cryptocurrencies comes as South African regulators are attempting to find the appropriate framework to govern the blockchain industry in the country.

For instance, in June 2021, South Africa’s Intergovernmental Fintech Working Group (IFWG) released its new position paper calling for the regulation of the country’s cryptocurrency ecosystem.

Similarly, Bitcoin.com News reported July that the South African Revenue Services had made changes to its online tax filing system in a move that targeted cryptocurrency arbitrage traders.

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