Hell Hath No Fury Like a Crypto-Bubble Denier Scorned
Cryptocurrencies are all the rage as “the combined market cap of all 865 registered craft currencies has vaulted by $28 billion to $151.4 billion,” explains Grant’s Interest Rate Observer in its September 8th piece “Crypto 36,000” along with pointing out there are 55 brand spanking new crypto-focused hedge funds doting the investment landscape.
Crypto fans might wonder what the “craft” refers to. Grant’s believes the burgeoning digital currencies have more in common with craft beers and government fiat currencies than Krugerrands, Eagles and the golden like.
Not a part of Grant’s essay is Bill Fleckenstein’s view of all things crypto posted this week.
In a related development in the land of the chain letter -- i.e., crypto-trash -- the Chinese government decided to ban all digital currency ICOs over the weekend, which rocked that speculative arena (notice I didn't call it a market). I think that this may be a precursor to them banning cryptos en masse. Meanwhile, the IRS is starting to up the ante on the tax avoidance front. Thus, it will be interesting to watch the price action of those money wannabes over the next couple of weeks.
Speaking on behalf of digital coinage, crypto-evangelist Jeffrey Tucker writes on fee.org,
Price swings are expected. So are flash crashes. Anyone involved in this sector knows this. Bitcoin grows more anti-fragile by the day. Not even a major fork and the prospect of yet another fork shakes people.
Meanwhile, there are thousands of other tokens out there, some representing direct alternatives to Bitcoin’s currency-like features and others representing broader services associated with larger digital structures like Ethereum. The market for the “Initial Coin Release” (ICO) has exploded as a way of raising capital that bypasses the absurdly regulated and insufferably clogged conventional capital markets.
It’s as if Grant saw Tucker coming. “Money is not a tech stock or a casino chip. Cryptocurrencies are tech stocks and casino chips doing business as money.”
ICOs may be the new thing, but old celebrities like Paris Hilton and Floyd Mayweather have jumped on for the unregulated ride.
I know for sure, hell hath no fury like a crypto-bubble denier scorned. The height and length of bitcoin et al’s rise is somehow proof that this time and this speculative thing are different. As Grant writes, “Argument holds no power against the locomotive force of a speculative mania.”
Charles MacKay wrote of companies started during the South Sea Bubble.
One of them was for a wheel for perpetual motion -- capital one million; another was 'for encouraging the breed of horses in England, and improving of glebe and church lands, and repairing and rebuilding parsonage and vicarage houses.' ... But the most absurd and preposterous of all, and which shewed, more completely than any other, the utter madness of the people, was one started by an unknown adventurer, entitled, "A company for carrying on an undertaking of great advantage, but nobody to know what it is." Were not the fact stated by scores of credible witnesses, it would be impossible to believe that any person could have been duped by such a project.
Historians will certainly scratch their heads over the “10 most ridiculous cryptocurrencies,” which include Insanecoin, Potcoin, titcoin, and Unobtainium.
Grant’s points out, “money is a store of value and medium of exchange”...”Sterile, it yields nothing, a point on which John Locke and Aristotle and Grant’s Interest Rate Observer are of one. By this definition, then, bitcoin, whatever else it may be, isn’t money. It’s rising price has imparted wealth, not stored it (it’s falling price erases wealth). Nor, for now, in it’s formative stage of development, is bitcoin handy for spending. Paypal is a cheaper medium of exchange. Credit cards give you cash back.”
The cryptoworld is not immune to the well-intentioned ideas of financial engineers. The Bitcoin Mercantile Exchange (BitMex) “offers up to 100:1 leverage on bitcoin derivative contracts.” And for those wondering what the next step is for the exploding ICO market, an ICO of an ICO is “a company selling one variety of digital coins in order to fund the sale of other varieties of digital coins.” CDO-squared come quickly to mind.
F.A. Hayek couldn’t have imagined in his wildest libertarian monetary dreams this explosion in currency (or sort-of-currency) production.
Thoughtful bitcoin bulls want to create an alternative to governmental monopoly money--to invent and perfect a monetary system undistorted by state-directed manipulation. What an observant bull is coming to see is that the QE-infested fiat system has turned their imagined monetary Elysium into a speculative pinball game.”
Oaktree Capital’s Howard Marks has begun to take a shine to bitcoin, writing, "Bitcoin fans argue that it qualifies as a currency … it's something that parties can agree to accept as legal tender and a store of value. That actually seems right."
However, Marks cautions, “But I still don't feel like putting my money into it, because I consider it a speculative bubble."
Whether you’re buying, selling or just watching, this cryptoepisode is monetary (?) history unfolding before our eyes.