And 2014's Worst Currency Was...Bitcoin

It was a bad year for the Russian ruble and the Ukrainian hryvnia, but nothing short of catastrophic for the Bitcoin.

Virtually worthless?

Photographer: Yuriko Nakao/Bloomberg

It's been a bad year for the Russian ruble and a terrible 12 months for the Ukrainian hryvnia. But it's been a catastrophic 2014 for Bitcoin, the virtual currency. While acknowledging that my currency forecasting prowess means I'm driving a desk rather than tanning on a beach, the gyrations do seem to offer some valuable lessons .

The Rise of Bitcoin

Bitcoin is second only to gold on the list of topics guaranteed to arouse the wrath of the Internet trolls. Yet relentless promotion can't hide these facts: The digital currency peaked at a value of $1,130 just over a year ago. Its plunge of more than 56 percent in 2014 makes it the world's worst performing currency this year, according to Bloomberg, which tracks 175 foreign-exchange values:


Bitcoin claims to provide Web buccaneers with a secure store of value free from the risk of government confiscation or interventionist devaluation, making it the currency of choice for old-fashioned money-launderers and modern-day snake-oil salesmen.

At a current value of about $326, Bitcoin isn't dead, yet it may be mortally wounded. The Dec. 20 sentencing of Charlie Shrem, one of the digital currency's most vocal cheerleaders as vice-chairman of the Bitcoin Foundation and chief executive of an exchange called BitInstant, to two years in prison for illegal money transfers doesn't help.

While innovation should always be encouraged, Bitcoin isn't yet fit as a place for orphans and widows to shelter their nest eggs -- although there are admittedly plenty of gold bugs who would say the same about fiat currencies.

The world's second-worst currency this year is Ukraine's hryvnia. Being at war with a nuclear-endowed superpower is an expensive business, and Ukraine's economy is crippled even after an international bailout worth $17 billion. The nation may need another $15 billion, according to the European Union, and Standard & Poor's said a debt default may be inevitable as it cut Ukraine's credit rating to CCC- last week, nine steps below investment grade.  

But being at war with your smaller neighbor can also be costly, especially if your belligerence attracts international criticism and economic sanctions, and coincides with a collapse in the value of oil, your key export commodity. So Russia's ruble has also been trashed this year.

Emergency interest-rate increases from the central bank plus a handy currency-swap offer from China have lifted the ruble just above the hyrvnia. Still, the rally will need extra legs for the Russian currency to hop higher to third-worst over Ghana's Cedi:

Worlds Worst FX

(For the sake of completeness, Somalia's shilling is the world's best performer this year, gaining more than 55 percent against the dollar. Yes, that's crisis-torn Somalia, although the gains seem to have more to do with expatriates sending gobs of money home than anything fundamental in the domestic economy, and are a repeat of the shilling's 2013 performance against its foreign-exchange peers.)

So what are the lessons from this year's currency losers? Being at war is worse for a currency than not being at war, whether you're fighting the world's financial authorities for legal validity, or engaged in a guerrilla skirmish as either aggressor or victim. Having friends with deep pockets helps when you get into trouble; Russia does, while Ukraine's international agency pals are hamstrung by their lending rules. Most of Bitcoin's supporters, meanwhile, seem to be hackers whose resources depend upon the Ponzi-scheme nature of the enterprise itself.

The key lesson, though, is that money remains at heart a confidence trick. Minor things, like being backed by a country or countries, being minted by a government, and having a physical form you can put in your pocket, still matter. All of which could come into sharp focus the day hackers reduce our checking-account balances to zero, the financial system crashes into chaos and the fragility of the world's banking infrastructure is laid bare for all to see. Let's hope 2015 isn't the year when we find out that zeroes and ones in a computer aren't really money.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

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    Mark Gilbert at

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