Should I “Invest” in Bitcoin, or one of the many other cryptocurrencies ?
So as an ex-Investment Banker, Trader and ongoing Investor,… I thought I would offer my “2 cents worth” … for what it’s worth !
Cryptocurrencies are an inherently useless quasi-ponzi scheme.
Now…don’t get me wrong … I have nothing against making money…I love making money online … and I love innovative new technology.
So before I get crucified, by all you Crypto-philes and ‘soothsayers’ out there, I will offer, what I feel is a reasonable and sober analysis of Bitcoin and Cryptos.
But firstly let’s indulge a little in the collective mania.
Cryptocurrency Traders and Crypo-philes continue to push the barrow of all things Crypto,
… to the point where you now can’t get into a taxi without the driver telling you chuffly, how he had put $20,000 into Bitcoin and that it was now worth $60,000!
One particular driver, then went on to say that his friend had borrowed $400,000 on his house… and that he was going to make a fortune with Bitcoin !
Another cabbie said that his friend… also a Cabbie, was now only a part-time taxi driver as he was now a Full-Ttime Crypto Trader !
When taxi drivers start talking about “Investing” in the latest “thing” then you know it’s definitely time to get out
…as the Smart Money has been in and out long ago !
After many years of Market Trading, there is one thing I know for sure,
that if you don’t understand the commodity that you are trading,
if you don’t have a strict and disciplined Trading Plan and if you don’t know where and when to get in and out of the Market,
with tight Stop-losses and an exit strategy in place,
..then you are bound to lose your Shirt …your Shoes .. Your House …all your Money and your Spouse,
…if you still have one, after risking your savings !
Claims that cryptocurrencies will replace established fiat currencies are in our view (ie.the crypto-phobe camp),
…inherently misguided and in the case of Bitcoin,
… a speculative Bubble!
Indeed, the latest price falls following the South Korean governments intervention …
suggest that the bubble is bursting — although with prices still 10 times higher than a year ago, they have a lot further to fall yet !
However, we have seen the bitcoin price plunged by around a quarter in about a day, with other major cryptocurrencies such as Ethereum and Ripple falling by even more.
If you can handle this extreme volatility… and you think you know what you are doing … then good luck to you!
If you can execute a quick Trade … and the Gods and all your ‘stars’ are in alignment, … and you have already cashed-in your initial outlay, then great .. well done!
But please understand you are Not “Investing” !
You are simply Gambling …Speculating,
and riding the crest of the wave called,FOMO ( Fear Of Missing Out )
…which is predicated on another great Market axiom“ The Greater Fool Theory “
ie. there will always be another “chump” (fool) to buy at a higher price than you, when you are ready to Sell !
Of course Trading Floors and Markets have been littered with “such fools” for centuries.
One of the biggest problems with cryptocurrencies, is that they do not have what analysts call an “intrinsic value” —
unlike shares, they do not pay dividends; unlike housing, there is no potential rent; unlike gold, they are not physically useful or even pretty.
Further, the Crypto Market is a totally ‘unregulated Black Hole’ !
Cryptocurrency devotees counter this, by arguing that so-called “fiat currencies” — money issued or backed by central banks — are also intrinsically worthless.
Of course, modern paper currencies don’t have any intrinsic value either.
But unlike dollars, for example, bitcoin is not backed by a credible authority, such as a central bank or government.
Some argue that bitcoin’s value will be in supplanting gold as the world’s preferred safe haven store of wealth.
If that was the case, and given bitcoin’s fixed maximum supply of 21 million, if its price rose to match gold’s market capitalisation, analysts estimate that the cryptocurrency could rise to $US630,000.
However, that would assume that bitcoin was the sole accepted cryptocurrency, whereas its dominance is currently being challenged by more than a thousand rivals.
Most people are buying bitcoin, not because of a belief in its future as a global currency, but because they expect it to rise in value !
Again …the Greater Fool Theory !
It has all the hallmarks of a classic speculative bubble, which at some point will burst.
When it will fully burst, is anyone’s guess and prices could yet rise again, before they fall.
Even if we assume that cryptocurrencies in general have a long-run future, only a few, will make it and no-one knows which ones.
If bitcoin were to be used globally, then — again, as with the gold standard — all countries would effectively end up with fixed exchange rates.
This would severely limit their scope to deal with changes in domestic economic conditions.
It is extremely unlikely that governments will tolerate this…and thus expect to see further government intervention in the crypto-space, as we have recently seen with China and South Korea.
UK-based Lloyds Banking Group, and US banks JP Morgan, Bank of America and Citi, have all announced they will ban their customers from using credit cards to purchase digital currencies.
We do not bank [with] businesses that operate as issuers, dealers or exchanges of digital or cryptocurrency.”
Increasingly exchange authorities advise that, “as most of the virtual currency exchange platforms are generally not regulated, customers may not be protected or have any legal recourse if the platform fails or is hacked,”
Bitcoin and other crypto’s are a formula almost guaranteed to end in tears, but still speculators pile in to the bubble !
Arh Man – You just don’t get it .. Crypto’s are the Future Man ! … I hear the Crypto-philes cursing !!
All I can say is good luck … and make sure you’ve paid for your Shirt before you lose it !
As I said at the beginning:
Cryptocurrencies are an inherently useless quasi-ponzi scheme.
Now to reconfirm my Techno-phile status,
Yes, I believe ‘Blockchain’ technology is an amazing innovation and a very useful technology.
It is already being used by Banks and Stock Exchanges around the world and many business, like IBM are experimenting with it and undoubtedly, it has far reaching applications for the future,
… not just with the ‘settlement of financial transactions’
…but in many areas of business, health and public life.
Once tested and perfected…and in some instances, underwritten by Central Banks and Governments..It will effectively eliminate the “middle man” from transactions …
and make the “settlement” of transactions ..’financial or otherwise’ relatively immediate!
But as far as Cypto’s .. ‘It will all end in Tears”
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