A Cynic’s Guide to Crypto Investing

It is still warm here in Lisbon. Like summer.

We’re staying at a hotel on the Avenida da Liberdade, with large plane trees shading the wide sidewalks and grand old buildings lining the streets.



Bill explores the shaded streets of Lisbon
[Click to enlarge]

Meanwhile…

Bitcoin went over $6,000 on Sunday and then fell on Monday. This morning, it is at $5,752.

Crypto bubble

Dad, there’s going to be a bloodbath…

We were urging everyone to learn about bitcoin. This is the biggest thing to happen in the money world since gold was introduced.

But this market has gone crazy. Now, we’re warning people to be careful. As you say, you shouldn’t put any money into cryptocurrencies unless you could say goodbye to it without losing your sense of humour.

Our in-house enthusiast knows a bubble when he sees one.

A lot of people are going to lose money in this market.

I still believe in cryptocurrencies. But now everyone wants to get into cryptos. And a lot of these deals are pure rip-offs. Most of these ICOs [initial coin offerings, ways crypto ventures raise capital] have no hope of succeeding. This is like the dot-com craze at the end of the 1990s.

We’ve turned defensive. People used to need advice on how to get into cryptos. Now they need advice on how to get out.

‘Gigantic scam’

Jordan Belfort, the crooked penny stock broker portrayed in the Martin Scorsese movie The Wolf of Wall Street, says initial coin offerings are a ‘gigantic scam’.

He knows one when he sees one. He served 22 months in prison after pleading guilty to securities fraud and money laundering.

(Whatever fraud and foolishness is involved in cryptocurrencies, it is a mere chemical trace of the scam of the fiat dollar. More on that anon.)

Easy money, like politics, always attracts scoundrels. And the market for crypto assets is pulling in hustlers…robo-traders…and thrill seekers. From their point of view, the words ‘crypto’ or ‘blockchain’ are like the keys to a rich man’s liquor cabinet.

And from an investor’s point of view, it’s like betting on who’s the dumbest member of Congress. You have plenty of candidates to choose from…and not much hard evidence to go on.

Nearly $1 billion went into ICOs last month. So far this month, according to the Financial Times, 201 ICOs have raised over $3 billion. 

Intangible asset

When you buy a stock, you take a risk: It might go down. The company might even go bankrupt.

But you are buying something real — a piece of a business. You can study it all you want. Then you take your chances along with other shareholders.

When you buy real estate, too, there is risk involved: Property is subject to wind…and in some places…waves…or fire. Or termites. Or squatters (a problem now on our ranch in Argentina). Or confiscation.

Sometimes, property goes down for long periods (many neighbourhoods in Baltimore have been in decline for the last 50 years). And sometimes property is completely illiquid. (In Argentina, the government prohibits foreigners from buying, which makes some large holdings almost unsellable. But at least, you can still live there…and enjoy that delicious, low-fat, sand-fed beef!)

Almost everything you invest in has some tangible presence…something real behind the price.

Even a gold mine, as Mark Twain remarked, is a hole in the ground. With a liar standing on top of it!

But when you buy a new crypto asset (not all of them are currencies), what exactly are you buying?

What do you get?

Bitcoin — $1 million?

Arguably, with bitcoin, you get ‘money’.

Its boosters believe it is better money than greenbacks or euro. And maybe it is.

Over the last eight years, bitcoin has been tested…challenged…and attacked.

Still, it survives. And it goes up against its main competitor, the US dollar. Compared to bitcoin, the dollar has lost 65% of its value over that period. (Despite the warning, our children are sticking with their bitcoin position.)

But how many of these new crypto ventures will survive? And what will you have when they don’t?

No rusting hull of a ship on the rocks. No broken-down farm with weeds growing around the tractor…no souvenir bond certificates to hang on your wall…no baseball cards…no used chewing gum or discarded engine oil.

You get…well…maybe nothing at all.

On the other hand, bitcoin could go to $1 million, for all we know. And maybe these Johnny-come-lately cryptos will be hugely profitable.

But don’t put money into cryptocurrencies unless you either: (a) know what you’re getting into or (b) are willing to say goodbye to it.

Preferably both…

Regards,

Bill Bonner,

For Markets & Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities.

Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and MoneyDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

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