Hotmail founder Sabeer Bhatia believes that cryptocurrencies are valued very poorly. Their valuations are often derived from their perceived value and pure speculation of the company than its true success. “The underlying business model that I have looked at is fraud,” said Bhatia. “Cryptocurrencies are nothing more than white papers, a hope in the way the world will be.”
Bhatia’s concerns are derived from the idea that certain cryptocurrency projects hold billion-dollar valuations despite not having a live product. Although Bhatia respects blockchain technology and sees its value as a technology that can facilitate cheap and instant payments, he agrees with Warren Buffet when it comes to cryptocurrencies. Cryptocurrency investing can be very dangerous and risky, especially for the everyday retail investor.
While many investors agree and see the similarities between the dot.com bubble and the emerging cryptocurrency economy, Bhatia rejects this notion, citing that“it’s worse.” The Hotmail founder reaffirmed his beliefs multiple times during the interview. He believes that investing in cryptocurrencies are “too good to be true” and has questioned whether people truly understand the nature of cryptocurrencies and how they function.
“It has certainly caught people’s imagination. And it’s become a movement. People are fascinated with anything that is successful and financially … But now we’re getting down to the nitty-gritty. What are they?”
The Debate Over the Value of Cryptocurrencies
Bhatia shares a very different view on cryptocurrencies than many technology enthusiasts. He believes that the most successful companies in the last decade were companies that leveraged the network effect. These include Facebook, Instagram, WhatsApp and even Uber.
The Hotmail founder sees the similarity between cryptocurrencies and successful unicorns in the technology sector:
“It seems that cryptocurrencies are trying to grow a network and people buy tokens and people participate in the growth of the network. But what is the network really doing? The fundamental question of creating value for society is one they carefully dodge.”
Although Bhatia questions the true value of cryptocurrencies for society, Wall Street veteran and CEO of Japanese online brokerage Monex mentioned to CNBC that “cryptocurrencies could take off like derivatives did 38 years ago.”
Matsumoto mentioned that very few people understood derivatives, like how very few people understand the value of cryptocurrencies today. He linked people who understood derivatives to rocket scientists and those who understood the underlying benefit.
According to Matsumo:
“Regulators really hated derivatives in 1980 but just soon after that they really embraced them. What’s happening in the crypto world today is very similar to derivatives in the 1980s, and sooner or later all of those regulatory frameworks will be fixed.”
Cryptocurrencies and Its Potential to Disrupt the Existing Financial System
Bryan Chia, a cryptocurrency and blockchain enthusiast, takes the role of cryptocurrencies to another level. Unlike Bhatia and Matsumoto, Chia believes that the value of cryptocurrencies does not come from short-term profits but how it can potentially disrupt the existing financial system. He mentioned on his medium blog that “modern finance is broken” and that “governments and banks, cannot be trusted to not debase money, because they have done and will continue to do that.”
While it may be difficult in the early stages, Chia has the hope that cryptocurrencies like Bitcoin can restore the financial system to one that isn’t controlled by banks and governments.