Donald Trump teaches crypto devotees a valuable lesson

US President Donald Trump should have been a godsend to the mysterious world of cryptocurrency.

Instead, it has been a godsend to him.

A late convert to the cause, Trump marshalled the crypto world behind him during the 2024 election after denouncing the alternate monetary system as "a scam" during his previous tenure as president.

America, he promised, would become the world's crypto capital.

To achieve that he would loosen regulations, install a crypto-friendly chief to the US Securities and Exchange Commission and ensure widespread acceptance of Bitcoin.

He's delivered on all counts and amassed a vast fortune along the way.

According to filings released last week, Trump and his family reaped a $US1.4 billion ($2.02 billion) bonanza from crypto ventures alone since his return to the White House.

But he's clearly remained a sceptic. For in their crypto dealings, the Trump family has taken the cash up-front, or clipped the ticket on transactions, rather than holding cryptocurrencies as assets.

That's left them relatively unexposed to the often-violent market moves at a time when their backers have lost enormous sums of money.

In addition to his family's involvement in World Liberty Financial, a cryptocurrency firm run by his sons Donald Jnr and Eric, he pulled in $US636 million from issuing what is known as a meme coin.

Known as $TRUMP it is a token with no fundamental value. Its price has collapsed, leaving a million investors with losses of $US3.8 billion.

But the crypto industry losses aren't isolated to Trump family ventures.

Across the entire landscape investors are sitting on massive losses.

Having been delivered everything they've always craved, widespread acceptance and respectability, Bitcoin devotees have found themselves holding just another asset that has no useful purpose and a questionable future.

No longer a renegade, it's become an also-ran with little purpose other than as a gambling instrument. And even that is now under threat.

When never means something else

Michael Saylor finally had some good news to trumpet last week.

The stock price of his company Strategy, the world's biggest corporate owner of Bitcoin, shot up after it raised cash and, to celebrate, Saylor published his latest vision for the future of the cryptocurrency.

Saylor is a man under pressure. His company's share price has plunged 78 per cent in the past year, even after last week's rise following the collapse in the price of Bitcoin.

And for a man who just 18 months ago declared "never sell your Bitcoin", Saylor has been forced to do exactly that.

Last month he began selling small parcels and then, last week, he authorised a program to unload up to $US1.25 billion of its reserves if need be.

A survivor of the dotcom boom of the 1990s, Saylor shifted from software to cryptocurrency in 2020 and rode the bitcoin price surge through to October last year.

His aggressive Bitcoin-only focus drove Strategy's share price into orbit, way beyond the value of his underlying investment in the cryptocurrency.

Saylor used that premium to buy even more Bitcoin. And to back it up he sold Strategy shares with a guaranteed dividend of 12 per cent to buy even more.

It worked like a dream when prices were rising.

But when the October Bitcoin downturn steepened into a full blow crash in February, meeting those guaranteed dividends became a challenge.

The company has reported losses of $US27 billion in the two quarters to the end of March with more expected in the June quarter.

Now it is selling Bitcoin and shares to pay the guaranteed dividends.

A survival Strategy.

Power hungry AI turns miners into data centres

A couple of years back, when Sam Bankman-Fried's FTX and a host of other crypto exchanges collapsed, it made front page headlines.

But in the past few months, problems have emerged in some of the world's biggest crypto financiers.

In March, BlockFills, a high end US liquidity provider, filed for bankruptcy.

At the other end of the crypto world something far more tangible has undermined the industry.

Electricity.

Bitcoin relies upon "miners" to keep the blockchain operating. Transactions are processed by these miners who are paid in two ways: they receive a commission and they are awarded new Bitcoin for ensuring the transactions are verified.

But the process involves solving complex mathematical problems using huge banks of computers and enormous amounts of electricity.

As new Bitcoin becomes scarcer and more difficult to mine, the process becomes ever more power intensive and vastly more expensive.

And given Bitcoin at $US63,000 is less that half its October peak, the economics have become marginal with high costs and minimal returns.

Volatile Bitcoin prices often result in miners operating at a loss as electricity prices swamp returns.

Enter artificial intelligence and the sudden race from hyper-scalers to build data centres across the US.

Bitcoin mining sheds from Texas through the mid-west, with grid access and huge banks of computers capable of processing and storing enormous amounts data, are almost ready to go with minimal conversion costs.

Many miners have opted to switch to AI backup with better margins and more reliable returns.

A recent and high profile entrant to the Bitcoin mining game is Eric Trump.

Last September his American Bitcoin was swamped by investors when it listed on public markets. Despite holding just $US270 million in Bitcoin the stock soared, delivering a total market value of $US13.2 billion.

It claimed it could mine the coins at far lower cost than rivals, delivering big profits.

But with the halving in Bitcoin value that advantage has diminished and the stock price has plummeted.

From a $US142 peak it now trades at just $US7.48, leaving Trump family followers deeply in the red.

Even the gamblers are leaving

Bitcoin was born in the midst of a storm.

As we entered 2009, the world was in chaos and the global financial system was teetering on the edge of an abyss.

Banks wouldn't lend, even to each other, and the global economy was grinding to a halt.

It was a crisis that left millions out of work and countless others homeless, their lives ruined.

It wasn't surprising that out of the fog, the promise of a new monetary system, one that couldn't be manipulated by governments and central banks held such allure.

But 17 years later, Bitcoin and cryptocurrency mimics largely have failed.

Rarely used in transactions, they provide no guard against inflation and their extreme volatility renders them all but useless as a store of wealth.

Instead, stablecoins, which are tied to the value of the US dollar, have become the only useful crypto instruments in transactions.

Even devotees measure their value in old style fiat currencies, the very instruments that cryptocurrencies were supposed to replace.

Bitcoin, and its mimics, largely have been transformed into gambling instruments. And even then, their appeal is waning.

When it comes to gambling, prediction markets are the all the rage. The two biggest are Polymarket, which is based upon crypto technology, and Kalshi which trades as a financial derivative on financial markets.

You can bet on anything. You can even take a bet on the bet. And they are largely unregulated given they are financial products rather than gambling.

Who's betting on Bitcoin's future?