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Interesting Read

A Reply to the question "What does this group think about Cryptocurrency?" on Facebook

Written by a Mr. Greg Kraigher

' Why Bitcoin (and all the cryptocurrencies) will trade $0 in my lifetime.

It’s happening. All over again. A new asset has come along and swept a lot of wannabe millionaires into its grand illusion. This is Tulip Mania in the 2000s. This is the 1999 tech bubble where any website could just get created out of thin air and have a billion dollar market cap. This is 2008 where people are buying up mortgage bonds and have no idea what is actually backing them up. We will all look back on this “currency” asset class the same in a short period of time. Not today, not tomorrow, not even next week or next year, but sometime in the not so distant future all of these cryptocoins will be worthless. That’s right, all of them will be worth ZERO dollars.

Let’s start by defining what money is.

1.  It’s a medium of exchange.  You can trade labor and resources (capital) for anything you want.
   

2.  It’s a store of value.  If you don’t want to spend your labor hours today, you can save them for a later day.
   

3.  It’s a unit of work.  Someone has generated this capital and it’s now a part of society. 
   

4.  The best money is divisible.  Meaning, you don’t have to over trade to get what you want. 
   

You can argue bitcoin and its ilk all have these characteristics under a few assumptions. Assumptions similar to the ones any other fiat currency in the world would also have. But that is where you would be short sighted. Even though today’s fiat currencies are different than physically backed ones of the past like Gold and Silver, your Fiat currency is still backed by the government printing them. The governments themselves might be poorly run, mismanaged, downright awful, unethical, etc., but the currencies are still backed up by every single worker in that economy. In the case of the United States, the dollar is not only back up by some incredibly hard working and intelligent laborers, it’s also backed by its natural resources and it has a military. The dollar has intrinsic value even though it’s printed on a worthless piece of paper.

Bitcoin on the other hand, is backed up by vacuum tubes and a power source. I’d compare it to “thin air” but that would be unfair to the air, because the air is at least a gas and that gas has an intrinsic value. Bitcoin has no intrinsic value whatsoever. It doesn’t exist expect as an idea.

Gold is another interesting asset with a storied past being used as money. Often times, it’s acted as a hedge against government inflation (money printing) as a way to keep that store of value. It’s a physically limited commodity, much like the limitations on the bitcoin circulation. There is only so much to go around, so if you want to own it you have to buy it from someone else who has. But like any real commodity, gold has industrial purposes and a demand outside of it being money. It has intrinsic value.

Now that we have touched on money, let’s talk about where we are in life cycle of the cryptocurrency asset class.

THE MANIA PHASE!

Yeah, we are here.

Etherium was trading $8 at the beginning on the year. Printed as high as $350 and as low as a dime in a single 24 hour period. God bless the people that only use stop losses and not stop limits. Bitcoin got as high as $3000 this year. As I write this article, it’ll trade somewhere between $1500-3500 because why not, it’s that volatile.

We got here because a lot of people are making good money on these coins. The first few waves of investors have almost assuredly made money on it, and they have told their friends and their relatives about how easy it is to make money. They explain it as a commodity with limited availability, so it will only go higher the more people catch on. They explain that they have only lost money on their sales, so now they never sell, just buy and hold. And for the most part, they would be right. If bitcoin was the only one of these, if it was a true monopoly, I would have to give it to them, they would indeed be 100% right. But we all know it’s not. Bitcoin isn’t even the best cryptocurrency in the asset class anymore. Etherium has many advantages over it. And each day some other tech wizard in Silicon Valley comes up with a new novel spin to promote their new coin.

ICO or initial coin offerings are nearly identical to their 1990s internet wunderkind counterparts. Backed by nothing tangible, serving no purpose other than acting as instruments of redistribution of wealth. A transfer of hard earned capital and labor into someone else’s idea. The fact that anyone can come in and make a new “currency asset” should strike you as jarring. It should. Or you could have that starry-eyed, greedy look on your face about how this is the thing that’s going to let you retire at the age of 35. Believe me that boat is about to ship like the Titanic. It’s already begun.

Before a mania can truly collapse, something has to happen, and that event may have happened last week. You have to have a wave of new investors that bought near the high (or as I like to colloquially call it, “peak stupid”) and are sitting on a loss. And then, it never trades that high again. The charts all of a sudden don’t look the same. This isn’t a sure thing after all. Maybe they will be smart and lock in a small loser, most people don’t. Most people expect it to turn around, allow their friend/relatives advice to rest in the back of their head because that first wave never lost money. It gives them confidence to hold it longer. Meanwhile, those early investors are seeing their portfolios drop not $1000-2000 like the new guys are; they are seeing losses of $50-100K. That’s a freaking Porsche. That’s a kid’s college fund. I can’t risk losing anymore; I’ve made enough on this, I NEED THIS MONEY. And then poof, selling. Hard selling. Stop loss triggers.

Then the worst possible thing happens. The new investors that bought “peak stupid” are out complaining about how they’ve lost 50% of their investment in a month. The word of mouth starts to spread, negatively. Old couples who bought the high will get on TV and tell everyone how they lost entire retirement fund and will have to work into their 80s! Meanwhile some tech exec will be sitting on a beach drinking a mimosa.

All it takes is one new wave of investors to sit on a loss. That’s all it takes. This is not some liquid instrument backed by an army and economists in an ivory tower. This has no intrinsic value. No, what you are buying is a worthless idea.

I asked a good friend who works for Bitcoin what happens when the owner dies, and if no one knows the password to his wallet. He told me it’s as though they no longer exist. I responded, “Almost as if it never existed in the first place.” '

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