Crypto – the new tulip bulb?

At the peak of tulip mania, in February 1637, some tulip bulbs sold for more than 10 times the annual income of a skilled artisan. Some have theorized that outbreaks of bubonic plague throughout the period caused folks to take chances they would not have ordinarily taken. Sound familiar?

During the current pandemic stock markets, property and crypto have constantly broken records. There is a sense of mania or is it FOMO (Fear Of Missing Out)?

Shares and property can be valued but what is crypto worth?

Nothing according to Nassim Taleb. He is the author of ‘Black Swan’ and one of the men who predicted the 2008 global financial crisis. He argues it isn’t a currency or a store of value (like gold), nor is it a hedge against inflation or world calamity.  He argues “[Investing /speculating in cryptocurrencies is] the idea that a collection of people would get rich at the expense of society for the sole privilege that the world is adopting their currency and not another.”

There are plenty influential commentators who believe Crypto is the future. Mike McGlone, a senior commodity strategist for Bloomberg Intelligence, projects that it’s more likely Bitcoin will rise to $100,000 than dip to $20,000.

Cryptocurrencies are not financial products but a financial adviser must act in the best interests of a client. I wonder how many feel confident recommending crypto?

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5 Comments

  1. Mighty Steve
    You make a number of statements in this piece which need closer scrutiny.
    1. Shares can be valued but cryptos can’t? The present value of a share is determined by the market’s valuation of the future earnings of the company in which the share is issued. In many instances the company has no net positive income, and therefore no value based on past and current earnings. What gives the share a market value are expectations that one day it could earn a positive income stream. The current price of a crypto is determined in the same way ie the market’s expectations of what its future income stream will be – ie it’s future price. In both cases market expectations could be wrong – both share prices and cryptos’s values could fall to zero. But the logic/reasons are no different.
    2. Bitcoins are not a currency or a store of value. You seem to be suggesting that fiat currency ($) has value and therefore is a store of value. But the notes and coins we use have almost no intrinsic value. Why do we then accept them for payments and as a store ofvalue? Because we have faith in our governments to maintain their value over time. If we are thinking about fiat such as Zim Dollar or Venezuelan Peso these currencies have no value. Cryptos are no different in the sense that provided the users/market has faith in their future capacity to hold their market value, they serve as another means of exchange and store of value. The big difference is that no government can intervene in affecting their supply – this is decentralised through the Blockchain.
    Before dismissing cryptos on the basis that they have no intrinsic value like gold, we need to understand why we accept fiat currencies that have no intrinsic value. And remember, fiat currencies are not backed by gold – it surprises me that Taleb, you and many others lump fiat currencies and gold into the same category when discussing/dismissing cryptos.
    B.Gills

  2. Biggles

    Crypto is nothing more than a computer program. The code is probably available on the internet if you look hard enough and have serious computing power (Crypto is VERY environmentally unfriendly). As Moore’s Law brings this power to mobile phones High School kids will create them on the bus from school. Supply will kill demand.

    Until then regulation has the potential to kill them.

    They have no intrinsic value. Their “smart contracts” are actually “dumb contracts”. They con only do one thing with no flexibility. You need lawyers for that.

    They are for the greedy. Lucky ones will cash out before they collapse.

  3. Mighty Steve
    I think you need to check your facts before exposing your lack of knowledge about cryptos any further.
    Supply killing demand? Bitcoin’s total supply was fixed at 21 million. Current supply is 18.5 million. How will the kids on buses kill the demand if they manage to mine the remaining 2.5 million coins?
    Just because Bitcoin is highly energy intensive to mine this does not mean that all other cryptos are also. See for example Cardano’s ADA.
    If smart contracts are so dumb who are so many major corporations especially in finance adopting them. Look at the DeFi space and you will find many very smart Smart Contracts. replacing humans – a lot like your Robos.

    1. Its still just a program. It may be hard-coded to only 21 million coins but what is to stop a new crypto. Say, “Programmed-on-the-bus-from-school-dollar”? Packaged with a few “cons” like a holiday in Haiti instead of a “smart contract”. There is no legal restraint on starting a new type of crypto.

      Stupid, greedy dudes will flood in. Some will make a lot of money

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