Last week, we attended a conference in Miami. Several crypto enthusiasts were there…including Teeka Tiwari and our own ‘in-house’ expert, one of our sons.
The price of bitcoin has fallen from a high of around $20,000 to about $8,000 today. That kind of a fall would knock the wind out of most investors. But the bitcoin bulls are still surprisingly bullish.
‘This pullback is very healthy,’ said one speaker. ‘There were so many bad deals in the initial coin offerings (ICOs — similar to initial public offerings, but with cryptocurrencies instead of stocks). Some of them were just absurd. And people who bought into those deals deserved to lose their money.’
‘Now, we’re getting onto more solid ground.’
He could be right. Bitcoin seems to have found its footing in the $6,800–$7,000 range. Thereafter, it began a modest recovery.
‘Look, a lot of people think there is “nothing” behind these cryptos,’ said one source. ‘But if there were nothing there, the price would have kept going down. The market would have discovered that there was nothing there…and the price would have gone to zero.’
‘It didn’t. Instead, the market discovered firm ground in the $7,000 area… which is a lot more than zero.’
What the market may have discovered is that bitcoin has a value as, well, bitcoin. When financial chaos strikes, gold holds its value…and bitcoin goes up.
Geezers on the internet
‘When you are in a crisis, it can be hard to get gold,’ explained another of the cryptophiles. ‘The dealers don’t want to trade gold for local currency; nobody does. Gold tends to disappear…’
‘It’s just Gresham’s Law at work. Bad money drives out good money. And usually, people are trapped. All that’s available is bad money. That’s the whole idea – to force people to use paper currency that is losing its value. That’s what is happening in Venezuela, for example, right now.’
We turned to The Christian Science Monitor for confirmation:
‘In the midst of a financial crisis with inflation nearing 2,000 percent, Venezuelans are using bitcoin to pay for groceries, medical bills, even honeymoons. Unaffected by the economic crisis, bitcoins give users an alternative to black market worthless government currency.’
‘“This is not a matter of politics,” [local Venezuelan] Mr Villar said. “This is a matter of survival.”’
Our boys bought bitcoin and other cryptocurrencies back in June 2017, against their father’s advice.
The old man has waited for an ‘I-told-you-so’ moment ever since. But it hasn’t come yet. In June, bitcoin was selling for about $2,500. Even after suffering a 60% drawdown, it’s still three times what they paid for it.
‘Hey Dad, remember when you introduced your readers to bitcoin… two years ago? You and Vern Gowdie tried to buy it. You got that young French girl, Claire, in the Paris office to help you. You made a video of it. I think the title was something like “Geezers on the Internet”.’
‘Ha ha…very funny.’
‘Between the three of you, you couldn’t figure it out. Well, if you had been a little more tech-savvy, you would have made a lot more money. The price of bitcoin was just $500 back then. Now, it’s 15 times that much.’
More than zero
The crypto market is no stranger to big numbers. Filecoin raised $187 million in one hour in its ICO. Ark — a ‘blockchain platform’ — went up 1,000 times. Nano, whatever that is, rose 3,747 times, transforming an initial investment of $500 into $1.8 million.
And there may be more big gains coming in the crypto space. Very, very few people own cryptos. They represent a tiny percentage of money transactions.
The experts tell us that most owners have what they call, derisively, ‘dust’ — very small holdings. They imagine, say, 5% of the world’s transactions being enabled by bitcoin, which might increase today’s price by 100 times or more.
We offer no opinion of our own. All we know is that there’s something going on…something more than zero.
But whether any particular cryptocurrency will go up or down, we have no idea. So we pass along the comments of one of the enthusiasts:
‘Look…we’re still in the very early stages. Money is already mostly digital. And paper cash is disappearing. It makes sense that new forms of digital money arise…and some will catch on.
‘It’s not going to replace the dollar. It’s not going to replace gold. But it is going to provide another form of money. When we have a financial crisis — a money crisis — such as those in Zimbabwe, or Cyprus, or Venezuela, people will lose their money in government’s paper currencies and mainstream banks.
‘They will flee to bitcoin and other cryptos…and they will protect their wealth. That’s what real money is supposed to do. And that’s what bitcoin does. That’s what makes it valuable.’
For Markets & Money