Calling Out Crypto Bullshit

The End of the Crypto era

The Railroad Mania of the1840s…the Radio in the 1920s… or the Internet of the 1990s…

Financial manias are often driven by paradigm-shifting new technologies.

The world will never be the same after the technology’s adoption.

In the meantime, investors try to identify the winners and losers of the technological revolution. And they will make and lose fortunes in the process.

I predict the collapse of the crypto mania will turn no differently.

The implosion of Luna, FTX, and other crypto icons marks the beginning of the end for crypto-era bullshit.

In the end, crypto bulls will be left licking their wounds.

And another fascinating chapter will have been written on the history of financial manias.

Source: Twitter: bullshit_crypto

The Wonky World of Crypto

"All professions are conspiracies against the laity."

-George Bernard Shaw

Ask an “expert” a question about crypto, and you subject yourself to an onslaught of technical mumbo jumbo.

“DeFi”….“Altcoin” …“proof of work.”

It’s like looking at the results of a blood test. Unless you’re a doctor, you have no idea what is going on.

Question the utility of crypto, and you’re greeted with a look of pity customarily reserved for the functionally illiterate.

Dare to criticize crypto, and you are dismissed as a ‘boomer” who “doesn’t get it.”

Well, I don’t understand the technical arcana behind cryptocurrencies.

But why do I need to?

I can’t build a nuclear power plant either. All I need is for the lights to work.

However, I do understand financial markets. And I know economic history.

And I understand that generating money out of thin air with digital code is absurd.

What’s more puzzling is how many millions of investors bought into the crypto bullshit.

Cryptocurrencies are little more than a speculative Ponzi scheme in a high-tech wrapper.

And as such, their demise is inevitable- and has already started.

Crypto as a Classic Financial Mania

Crypto started as a medium of exchange.

Then it morphed into a textbook financial mania.

First, crypto offered a compelling vision of a new world order. Crypto became more than just money or a medium of exchange. It came to represent a libertarian utopia and freedom from government control.

Second, crypto had the patina of a new whizbang technology. 

The awkward geeks who generate wealth from a few key clicks on the computer got it. Wall Street’s financial dinosaurs just didn’t.

Third, the compelling narrative attracted an army of naïve investors.

To these true believers, crypto represented freedom and anonymity.

Invest in crypto, and you are part of a revolution.

A couple clicks on a laptop in your basement in Columbus, Ohio, and you gave the finger to Wall Streeters in Columbus Circle in Manhattan.

And you get unspeakably rich in the process.

Crypto as a Narrative

In his book Narrative Economics(2018), Yale professor Robert Shiller described financial bubbles like Bitcoin as “a mental illness” with the following characteristics:

·       Rapidly increasing prices

·       People telling each other stories to justify the reasons for the bubble

·       People telling each other how much money they’re making

·       People feeling envy and regret that they didn’t participate

·       The news media is propagating the bubble.

You can apply this framework to the bubble of your choice.

And history is littered with colorful stories of financial bubbles, their reckless promoters, and the sky-high valuations these assets reached.

Crypto was no different.

Why Crypto is Bullshit

Here’s my contention.

Crypto has no intrinsic value. Its only value is the price it fetches today in the marketplace. And that price is subject to the fickleness of investors. That makes it a dangerous speculation at best.

Scarcity is Irrelevant

Bitcoin’s supporters argue that scarcity – and mining costs – give it its intrinsic value.

That’s complete bullshit.

Mining costs are no more relevant to the value of bitcoin than Marx’s labor theory of value is to the price of an asset.

“Scarcity” doesn’t make anything intrinsically valuable.

You can’t trade a four-leaf clover for a Ferrari.

But you can trade 20 bitcoin for the same car.

The only difference? How much the market values four-leaf clovers versus Bitcoin.

At the peak of Holland’s tulip mania in 1637, a single tulip bulb – the Semper Augustus – was worth more than a house on the Amsterdam canal.

Today, that house is worth about $2.5 million.

Sounds ridiculous, no?

But is valuing a fungible chunk of digital code at tens of thousands of dollars any different?

You Can’t Value Crypto

Cryptocurrencies produce no cash flows and no dividend yields. They have no price-to-earnings ratio.

I can put a value on a company’s shares. No one can do that for Bitcoin.

Sure, Cathie Wood says Bitcoin will be worth $1,000,000 in 2030.

On what basis?

She is making the number up.

Here’s the reality…

The intrinsic value of Bitcoin is zero.

That’s why Warren Buffett has said he would not buy all the Bitcoin in the world for 25 cents.

Sure, trading crypto can make you money.

Just because the price goes up doesn’t make it an investment… any more than buying Beanie Babies was when they accounted for 10% of eBay’s transactions.

No, You’re not a Revolutionary

Be honest

Are you a revolutionary engaged in a holy war against fiat currencies?

I didn’t think so.

If you bought into crypto, you bought it for a single reason:

To get rich quick.

You weren't on a mission to change the world. You just got duped into thinking you were.

You caught a mind virus. You bought into the bullshit.

How to Make Money in Crypto

Since June 2021, over $2.2 trillion of crypto value has disappeared into the ether.

It’s gone for good.

About $850 billion is left.

But that’s about $850 billion more than it's worth.

Imagine you know about a stock that was trading at $17,000.

But you knew it was worth zero

What would you do?

Well, Bitcoin still trades at $17000.

I know what to do.

Do you?