YOUGHAL, IRELAND – Yesterday must have been a slow news day in the cryptosphere.
On our browser this morning, there were only four stories about cryptos.
In one, a public Canadian company has bought a Dogecoin miner.
In another, Benzinga reports that:
Fidelity’s First Bitcoin Fund Raised Over $100M In Nine Months
In the third story, former White House Director of Communications and founder of investment firm SkyBridge Capital, Anthony Scaramucci, advises investors to put bitcoin in their 401(k)s.
And the final one tells us that a flight attendant has become a millionaire… trading cryptos, of course! MarketWatch has the details:
[Andrew] Dawood, who works as a flight attendant for one of the world’s largest airlines (he declined to identify the company by name), said he saved about $40,000 over four years and invested the entire amount in bitcoin on the Bittrex exchange, among others, at an average price of around $4,200 between Aug. 13 and Aug. 28 of 2017, accumulating 9.71 tokens.
That, and a few other reckless moves, has given him a $1.7 million pile, says the story.
Over at Bloomberg, meanwhile, six of today’s top headlines are crypto-related.
All the stories are positive. All suggest that there’s gold in them thar hills… and we better get there soon, before it’s all gone.
Bubbles and Bamboozles
In theory, cryptos may be a better form of money – better than the dollar or gold.
But there’s many a slip twixt cup and lip, as William Shakespeare put it. And probably a major market crash, too.
And while we’ve never actually set both feet in the crypto world… we’re a season ticket holder in the world of bubbles and bamboozles.
In the late 1990s, the financial press couldn’t resist a story about dotcoms. They were zombies, too – destroying more capital than they created. But a lot of people were getting rich on them… and many of them didn’t appreciate it when we warned that the bubble would burst.
Again in 2005-2007, a favorite story back then was about how an airline stewardess had made millions flipping houses. This phenomenon was thought to be very different from the dot-com dizziness. Everyone knew that “real estate always goes up.”
Again, there were those who didn’t much like our pointing out that it doesn’t.
Zombie Capital
And now… we have cryptos.
Is this just another of the big bubbles created by the Federal Reserve?
Or are they a huge new investment opportunity, not to be missed? Here’s Dear Reader Vince W.:
Bill, I love your work, but money invested in bitcoin is not zombie capital any more than the money you have invested in the gold bars sitting in your vault. (I have some of those, too).
Dear Vince, gold is not zombie capital… It is real capital just biding its time. Gold represents wealth that its owner earned (by providing goods and services to others) and didn’t spend.
As colleague Tom Dyson explains, gold – not stocks… not a 401(k)… not bitcoin – is real savings.
That’s what money is for… It allows you to save your wealth for use later.
And that’s why the dollar is not very good money. Even at the Fed’s 2% inflation target, it loses half its value every 30 years or so, eating away at your wealth like a blood-hungry zombie.
And we expect much higher rates of inflation in the years ahead.
Trading Fetish
How about bitcoin? Well, it could eventually turn out to be good money… and it could represent real wealth.
But right now, it is more of a Bubble Epoch trading fetish than real money…
The price goes way up… and then way down, depending largely on the Musk Factor. When Elon mentions any cryptocurrency – or any stock, for that matter – it tends to either gain or lose altitude – quickly.
That is fine for speculators looking to make a quick buck. But it is no way for a “store of value” to behave.
And even for transactions, cryptos – so far – just add another level of complexity, uncertainty, delay, and expense.
Crypto Nags
So, getting back to our question… Should we invest in bitcoin or any other cryptocurrency?
The simple answer is “no.” The advice we’re giving our paid-up Bonner-Denning Letter subscribers is roughly the same advice we gave our Diary readers 10 years ago.
They should use a tiny portion of their wealth to get to know… to experiment with… cryptos.
In our family, for example, one of the boys took the lead in developing a crypto portfolio. Your editor assumed the money would be lost… He suggested putting it in the ledger as “an educational expense,” not an investment. (Alas, the lesson learned may be the wrong one… None of our investments has done better than his cryptos.)
But cryptocurrencies are never real “investments.” There is no product or service rendered… and no earnings. Wrapped bitcoin? Theta? PancakeSwap?
Each one of these is supposedly worth more than a billion dollars. And each has its own story…
But which one will win the race?
At least at the racetrack, you take a fair guess. Each horse has a birth certificate… a sire, a dam… And each has a record. How fast did it run the last time? Was the track muddy or dry? Who’s the jockey? And, of course, what odds are the bookies giving?
But bitcoin is a bastard nag… its anonymous founder Satoshi Nakamoto denies paternity. And none of the others has ever run around the full track… from boom to bust.
We’ll just have to wait to see which ones cross the finish line!
Ripple or Mirage?
But wait… Maybe we’re wrong about everything. Maybe cryptos really are not only a new form of money, but a new form of investment, too.
Another story in the financial press is about Ripple. It’s a long story, complicated and fascinating.
Ripple Labs was set up as a cryptocurrency. Or maybe not. It is also a blockchain company, designed to help people move money across borders.
It appears to fund its business with sales of XRP, its own cryptocurrency. And it uses the money to develop software for banks to make it easy for them to move money around.
But then, it admitted that its software had nothing to do with the block or the chain.
This unusual, ambiguous activity attracted the regulators – FinCen and the SEC. And when the SEC case is resolved, Ripple Labs CEO Brad Garlinghouse says the company will go public.
And who knows? After the bubble pops and the dust settles, Ripple could turn out to be a profitable company and we will all have XRP in our digital wallets.
Maybe We’re Wrong
And who knows – maybe we ARE wrong about everything. Maybe this bubble won’t pop. Instead, the cryptos will just become more and more valuable…
And maybe the inflation we see coming will turn out to be “transitory,” just like the Fed heads say…
And maybe… just maybe… Joe Biden will turn out to be a great president… just like Donald Trump, Barack Obama, and George W. Bush…
And maybe the U.S. didn’t peak out in 1999. Maybe it will recover, like Rome after the Crisis of the Third Century… and limp on for 200 years more…
And maybe fake, printing-press money really will make us all rich…
And maybe we will live forever.
Regards,
 |
Bill
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