Why does ‘investing’ in bitcoin or cryptos make about as much sense as putting $50 notes in a shredder?
The following picture paints a thousand words:
[Click to enlarge]
This could easily be the chart for any number of history’s mindless manias.
See that parabolic curve on the far right? It’s a repeat of all the world’s most famous bubbles.
Every mug punter — who thinks making money is this easy — provides the rocket fuel to launch the latest scam/new paradigm/game-changer/discovery into the bubble stratosphere.
And they all end the same way…crash and burn.
Once the last fool has been suckered in, the downturn happens so quickly that it makes the speed of light look pedestrian.
I was in Paris for a week recently. I heard about bitcoin about a thousand times.
OK, that’s a slight exaggeration…but cut me some slack.
Compared to the hyperbole and blatant lies surrounding cryptocurrencies, my overstatement is the whitest of white lies.
I’m just waiting for the crypto launch that — in addition to its run-of-the-mill magical powers — also promises a cure for cancer or can endow the Donald with humility.
Why not? Cryptos can do just about everything else…or at least that’s what the foolhardy believe.
Seriously, what a con.
There are no earnings. There are no assets. There’s nothing…other than blind belief.
We should not be surprised. Humans behaving (really) irrationally is not new.
In 1837, Hans Christian Andersen penned The Emperor’s New Clothes. It has since served as a reminder of the crowd’s gullibility.
Perhaps Andersen got his inspiration from an event that occurred 200 years earlier…Tulip Mania in 1637.
Back to Paris.
I had some meetings there and was inevitably asked: So, what do you think about bitcoin?
What I thought and what I said were two different things.
My thought was: Obviously you also believe in Santa Claus and the Easter Bunny.
The filter from the brain to the mouth made the spoken response a little more courteous: I think it’s remarkable that so many people will part with so much money for something that nobody can measure, weigh or value. The perfect scam. Pure genius.
Rather than reinvent the wheel (or my thoughts on bitcoin), the following is an extract from the 27 October edition of The Gowdie Letter.
At the time this was written — a mere five weeks ago — bitcoin was US$5,700. Since then, the price has risen by over 60%…that should be the reddest of red flags to any rational person.
Yet, the crowd sees this as the most vivid of green signals.
One of us is colour blind.
The feverish excitement of recent days only reinforces my belief that this is not going to end well. When it does — human nature being what it is — people are not going to admit to being duped so badly. The shame and ridicule is something most will want to avoid.
Anyway, this is what I wrote five weeks ago; nothing has changed since, except of course the price people are prepared to pay for their foolishness.
‘This is from Value Walk on 23 October, 2017 (emphasis is mine):
“Unsurprisingly, [Warren] Buffett thinks coin offerings will end badly.
“‘People get excited from big price movements and Wall Street accommodates,’ he commented.
“Bitcoin, the mother of all digital currencies, topped $6,000 on Friday, up more than 500% this year.
“With a market cap now over $100 billion, Buffett remains skeptical, saying, ‘You can’t value Bitcoin because it’s not a value-producing asset.’
“He said that there’s no telling how far it will go and described it as a ‘real bubble in that sort of thing.’”
‘The comparisons of cryptos to Tulip-mania, South Sea bubble and dotcom hysteria have all been made.
‘The true believers are saying something like…this time it’s different.
‘Here’s my disclaimer…my tech ability extends to being able to turn my devices on and off.
‘Therefore, I come to this argument armed only with the knowledge gleaned from my trusty bulls**t detector.
‘The press is full of stories warning about ICO (initial coin offering) scams.
‘That should tell you something about this over-hyped and over-inflated marketplace.
‘Apparently, the blockchain technology is where the real untapped value is in cryptos.
‘That may be true. I really don’t know and I’m pretty sure most other people don’t either.
‘We’ll have a better idea of what value adding potential this technology has once the bubble has burst.
‘Until then…would I invest in cryptos?
‘It has all the look, feel and odour of a giant bubble.
‘A bubble inflated by the hot air of self-serving promoters and the gullibility of the masses who believe that making money is this easy.
‘If you disagree and you see “gold in them there hills”, my advice is to invest only what you can afford to lose…and be mentally prepared to lose it.
‘We’ll end this week where we started it…with historical precedents.
‘My prediction is that cryptos are destined to go down as the biggest scam in history.’
Cryptocurrency is not the only bubble out there. But it is the one that has captured the hearts (I won’t say minds, because that implies people have actually thought about this) of the mob.
Shares — in particular the much-worshipped tech stocks.
Credit markets — junk bonds are going to live up to their name.
You name it, anything that can be inflated by a decade-long supply of cheap and easy money has been.
Editor, The Gowdie Letter