The euro, not Bitcoin, is the real time bomb

Don’t worry: even if Bitcoin crashes, it won’t destroy the world economy. It will wipe out many investors, especially those who seem to believe (absurdly) that the best time to buy is when prices are high, but it won’t wreck the overall system.

There will be no financial crisis or generalised meltdown. The same cannot be said of the European establishment, which sees Brexit as an opportunity for protectionism and doubling down on its failed integrationist policies. Their approach, despite the first round UK-EU Brexit agreement, remains a major threat to the British and European economies.

Let’s start off with Bitcoin, which is obviously being pumped up in a deranged bubble. Capital Economics, the consultancy chaired by Roger Bootle, has crunched the numbers. The total value of Bitcoin – as of this evening – was around $240bn (£179bn). That represents a  big chunk of cash in one sense,  of course, but  not when compared to other assets.

The total value of all gold is about $8 trillion, for example. The value of Apple is about $900bn. As Capital Economics points out, even if the price of Bitcoin were to collapse to zero – and nobody is predicting this – the losses would  be equivalent to a 0.6pc fall in US equity prices.

In the overall scheme of things,  few other than those directly invested would even notice – the US equity markets bounce up and down by more than that every day. But the losses would be highly concentrated, and tens of thousands of people would be ruined and some businesses destroyed. The psychological impact would be great but the systemic and macro hit still pretty small.

This remains true even if the price of Bitcoin doubles again – though at some point the hit to wealth would undoubtedly become problematic. But we are not here yet, and an implosion over the next few days would be no Lehman Brothers moment.

Private monies are a good thing, and in time their value will become more stable and sensible, and there will be fewer bubbles like the present one. Cryptocurrencies are a spontaneous order, a bottom-up phenomenon, a product of private entrepreneurship – and are thus the very opposite of the constructivist, dirigiste top-down European structures. The former embody individual empowerment; the latter collectivist failure.

The emergence of Bitcoin, despite its bubbly state, and the gradual disintegration of the EU – we won’t  be the first to leave, especially when the next centralising push begins –  are great, if imperfect, allegories for our times.

I am therefore far more worried about Europe’s protectionists and arch-integrationists than I am about Bitcoin. The dramatic move by Donald Trump and the Republicans in Congress to slash their taxes should remind us just how vital it is for the UK to regain as much control over its laws and fiscal affairs as possible.

The preliminary Brexit deal was far less bad than I feared it might be, but it was still pretty mediocre. It is fundamentally problematic in one key way: the concept of regulatory alignment to help smooth an Irish deal could easily be used as a means of stopping almost all regulatory divergence for the UK as a whole. This would be disastrous and unacceptable. But it’s too soon to tell whether that is the intention or not.

Yet we are clearly right to be leaving the EU: as Martin Schulz, the Left-wing German politician explained this week, he and his fellow-travellers want to build a United States of Europe with far greater centralised powers, and expel all nations that disagree.

But while we shouldn’t try to stop this, we should seek to warn as many countries as possible to stay well clear. The policies this new empire will seek to pursue will be detrimental to free markets and capitalism in all but trivial ways. Yes, there will be a largish internal market, but that’s about it. There will be more and more regulations and ever high taxes. The creation of a single fiscal policy won’t truly counteract the side effects of a single monetary policy, and it will take one nasty recession or financial crisis to send the whole undemocratic structure tumbling down.

So yes, Bitcoin will probably crash. But so, in time, will the euro, and when that does happen the consequences will be so, so much greater.