Chanos: Bitcoin’s the last thing I’d want to own in a crisis

June 05, 2018
Chris Wheal

Controversial short seller and managing partner of New York’s Kynikos Associates, investment guru Jim Chanos has said that cryptcurrencies would be the last assets he’d want to own in a crisis.

Bitcoin and some of its rivals: useless in a crisis, says Jim Chanos

Open to fraud, cyber attack and highly volatile, Chanos sees cryptocurrencies as the antithesis of a store of value.

“For those who believe that you need to own digital currency as a store of value in the worst-case scenario, that’s exactly the case in which a digital currency will work the least. Food would work the best,” he says.

Libertarian fantasy

Disregarding any hype surrounding the cryptocurrencies as a libertarian fantasy, Chanos says: “The last thing I’d want to own is bitcoin if the grid goes down.”

Amid the hyperbole of his interview at the Institute for New Economic Thinking, Chanos made some interesting points about financial fraud – pertinent given currenct concerns over the rise in criminal activity associated with the rise in popularity of cryptocurrencies.

Fraud cycle

Chanos talks of a “fraud cycle” that lags the economic and business cycle. As financial markets improve, peoples’ sense of disbelief and caution garnered from the last downturn begins to disappear.

As the cycle reaches maturity, schemes that might have previously seemed too good to be true begin to gain followers.

“As cycles go on, we tend to see higher instances of fraud,” Chanos says.

“Many frauds are, by their nature, Ponzi schemes that require new money and new investors to pay off the old investors. When people want their money back, the insolvency of the venture is discovered.”

ICO fraud

Indeed, given the rate at which initial coin offerings are now launched, the risk of scams becomes ever greater.

Last month South African police announced they were pursuing a cryptocurrency fraudster who made off with 1bn rand ($80.4m) in an ICO ponzi scam.

So worried is the US Securities and Exchange Commission about ICO scams that it set up its own fake ICO web page to show readers what a fraudulent coin offering looks like.

Chanos says: “Today we’ve got bitcoin and ICOs, which went ballistic in 2017. I suspect going forward we’re going to see more and more evidence of questionable companies as this bull market keeps advancing and aging.

“We’re now nine years into this bull market, same as the ‘90s, so I suspect that now things are starting to percolate. I think bitcoin and the ICOs are just one manifestation of that.”

Post written by Chris Wheal
Chris Wheal is editor of OpenLedger's news and features service. An award-wining business journalists himself, he runs a team of freelance journalists from across the UK and north America.

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