Bitcoin will go to zero, warns Magellan’s Hamish Douglass

In his letter to investors, Magellan chief Hamish Douglass has delivered a playful spoof on Bitcoin.

Hamish Douglass: “I predict all these forms of cryptocurrencies that are not backed by central banks or backed by assets will ultimately go to zero.” Picture: Britta Campion

There are two sorts of people in this world. And Hamish Douglass does not believe in Bitcoin.

The Magellan investment chief delivers a playful spoof of the cryptocurrency in his letter to investors: a complete illusion which will end up going to zero.

“I have never seen anyone in simple terms explain what is actually occurring there. I tell the story about the creation of crypto gold – a hypothetical,” Mr Douglass says.

“A Japanese friend of mine decides we going to launch a new gold ETF. He comes up with a very clever idea that it’s going to be backed by one metric tonne of gold and start with a million units. At the current gold price, it would be worth $65 per unit.

“He wants to make a few modifications to this gold ETF and cap the number of units at 20 million. And we are going to issue a new unit every time someone solves a complex mathematical problem. And so we launch this new product that we called Gold Coin.”

“We start. People solve the problem and every time we issue a new unit, the unit price goes down. And we said we can’t believe we are so stupid, because of course if we keep issuing more units when people solve the problem, the value of this product will go down by 95 per cent as we increase the units from one million to 20 million units.

“And so I cleverly suggest what we actually need to do is increase the gold backing of our new crypto gold from one million tonnes to 20 million tonnes as we increase the number of units on issue.

“And my Japanese friend says you’re just so stupid, that’s not solving it. No one will solve the problem if they have to buy gold. Who is going to pay for the gold every time you issue the new unit? He then says, in order to solve this problem we’ve got to remove the gold backing the product. It’s the gold that is causing the problem. People are getting confused about this because it’s got gold backing it. If we removed the gold, we can create the illusion of scarcity.”

Mr Douglass grins.

“I’m just trying to explain it in a story that no-one has ever told before about how stupid this is, and what it is playing on. And I predict all these forms of cryptocurrencies that are not backed by central banks or backed by assets will ultimately go to zero. I can’t tell you when it will happen, but it’s inevitable that it will go to zero.

“I also predict that ultimately we will move into cryptocurrencies but they will either be asset-backed or they will be central government backed. So maybe there is some truth in gold coin after all.”

Prepare for the outraged true believers.