Last week, Forbes magazine, known for tracking the world’s most wealthy individuals, published a new rich list. The “Crypto billionaire’s club”, a who’s who of those who have the most valuable stakes in cryptocurrency, looked like the coming of a new wave of tech geeks who had become extraordinarily wealthy.
At the top of the list was Chris Larsen, the co-founder of the Ripple currency, with a net worth of up to $8 billion ($11b).
Others included Zhao Changpeng, the founder of the mega Bitcoin exchange Binance, and Cameron and Tyler Winklevoss, the identical twin rowers who invested millions in Bitcoin after suing Mark Zuckerberg, claiming he stole the idea for Facebook from them.
But there was a catch. By the time Forbes had got around to publishing the list, most of the 10 “billionaires” on the list were no longer worth that much.
Last week, after a mass sell-off of cryptocurrencies, prices tumbled to their lowest levels for several months.
The most famous digital currency Bitcoin, which had climbed close to US$20,000 less than two months ago, fell below US$6,000 at one point, and though it staged a slight recovery, it has still more than halved in value since its December peak.
Few of the billionaires – or even the ex-billionaires – on the Forbes list are likely to mind too much.
The Winklevoss twins first invested in Bitcoin when it was US$120. But for the amateur investors who had put huge sums into the virtual coin having watched it do nothing but go up in 2017, it could be a disaster.
For months, regulators and governments have been warning that cryptocurrencies pose a substantial risk to investors, and even to the financial system.
“Serious financial stability issues may result if they achieve wide-scale usage,” Randal Quarles, the Federal Reserve governor in charge of financial regulation, warned in November.
This year, digital currency prices have dropped dramatically, partly as a result of fears that regulators and banks are finally becoming concerned enough to take action.
Cryptocurrency prices had soared and crashed before, but Bitcoin had never quite attracted a mania like this.
Last year there were reports of families selling everything they had to invest in the boom, people giving up their jobs to trade cryptocurrency, and many beginning to buy Bitcoin by borrowing money.
Almost 20 per cent of cryptocurrency owners have invested on credit, according to Coindesk, a website that tracks the industry.
Credit providers seemed to have few problems with this during the boom, but January’s collapse appeared to jolt them into action.
Earlier this month, major US banks J P Morgan Chase, Bank of America and Citigroup all banned the use of credit cards to buy cryptocurrencies.
Last week The Daily Telegraph revealed that Lloyds Banking Group, which owns Halifax, Bank of Scotland and MBNA – a portfolio of 9 million credit card customers – had done the same. The company said it would continue to allow customers to buy on debit cards, but that it did not want to shoulder the burden of Bitcoin buyers’ losses should the market go south.
Virgin Money followed, although other lenders have continued to allow credit card purchases.
But this could be just a taste of an impending crackdown on the cryptocurrency market. Last week the Bank for International Settlements (BIS), an exclusive group of the world’s central bankers and top regulators, ripped into virtual currencies.
“Bitcoin, while perhaps intended as an alternative payment system with no government involvement, has become a combination of a bubble, a Ponzi scheme and an environmental disaster,” BIS general manager Agustin Carstens said.
“The volatility of Bitcoin renders it a poor means of payment and a crazy way to store value.”
There are plenty of critics of Bitcoin but few with the clout of the BIS.
Carstens urged regulators to intervene: “There is a strong case for policy intervention,” he said. “Appropriate authorities have a duty to educate and protect investors and consumers, and need to be prepared to act.”
The BIS may not have to wait too long.
Last Tuesday, the leaders of the two main US markets regulators, the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), told senators they wanted more powers to oversee the market.