To Crypto Or Not To Crypto

To Crypto Or Not To Crypto

Bitcoin has been on a tear recently. Currently trading at $38,319.59 it has almost quadrupled in price since September of last year. Not coincidentally, the Dow is also trading at all-time highs.
To me, it looks like a severe case of fear of missing out, with stock and crypto prices skyrocketing for no apparent underlying economic reason.
In a recent tweet, Mark Cuban had this to say about crypto:
“Watching the cryptos trade, it’s EXACTLY like the internet stock bubble. EXACTLY.” 
“I think BTC, ETH, and a few others will be analogous to those that were built during the dot-com era, survived the bubble bursting, and thrived, like AMZN, eBay, and Priceline. Many won’t.”
Having lived through the dot-com bubble, I know exactly what Mark Cuban is referring to.
Dot-coms were all the rage in the late ’90s because they were the newest thing on the block and everyone wanted a piece – economic fundamentals to be damned. But when accountants started digging into the books of these dot-coms, it was the beginning of the end. Most dot-coms were mirages – deriving no revenue from any tangible product or service.
Some dot-coms survived and even thrived. Amazon, eBay, and Priceline are examples. Unlike other dot-coms, however, these companies survived because they offered tangible goods and services.
Mark Cuban was right to an extent. Most cryptos will fade away. There will still be a small segment of the worldwide economy that will accept Bitcoin as a form of currency, but its value will likely fall back down to levels after its last bubble burst in 2018.
The problem with Bitcoin and every other cryptocurrency are that, unlike Amazon, it offers nothing of tangible value. It doesn’t even do a good job of what it was intended to do – offer a secure form of currency for online transactions.

  • First of all, it’s not secure – frequently subject to multimillion-dollar heists every year.
  • Second of all, it’s not widely accepted as a form of currency by major online merchants. If you can’t use it to transact, what use is it as a currency?

So why the crypto craze? People are bored and restless from COVID lockdowns. Speculating on crypto and the stock market is a surrogate for Vegas.
It’s funny that with every bubble, you hear the same thing:
“This isn’t a bubble. This time it’ll be different. These prices are sustainable and I just don’t see a ceiling.”
Some will say you can’t predict the future based on the past. Crypto is not like anything we’ve seen before. You can’t compare it to dot-coms or mortgage-backed securities they argue.
I’d argue that they are exactly like past bubbles in that prices don’t match the economic fundamentals. Sky-high dot-com prices weren’t supported by losses on the balance sheets. Hot demand for mortgage-backed securities ignored the subprime loans underlying them. If I’m going to bet on anything right now, it’s that everyone else is wrong again just like they’ve been in the past. Crypto is a bubble.
I’m all for progress and innovation but look at all the new ideas that have survived and thrived in the past. Companies like Amazon provide a valuable service. Sure investing in crypto or Bitcoin may give us some excitement that we miss from Vegas or the horse track while being sequestered, but know the risks.
Study the past. All it takes is one iceberg to sink the entire ship. With dot-coms, it was accountants questioning balance sheets. With mortgage-backed securities, it was defaulting subprime mortgages.
What will it be this time? A regulatory change from the new administration? Whatever it is, it could all end fast, as we’ve learned in the past.
If you enjoy the thrill of investing in crypto, who am I to talk you out of that privilege?
Just remember the golden rule of gambling:  Don’t wager more than you can afford to lose.
And if you insist on playing with crypto, don’t ignore the fundamentals. Invest in other assets that offer real value, tangible assets, or even a fixed income. These are the types of assets that have proven their longevity. Crypto may not always be around, but these assets will.

About The Author

John Turley
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