by John Galt
January 23, 2018 21:00 ET
As America becomes more and more fascinated with the internet porn version of “paper gold” (you know, the stuff allegedly stored in a triple secure vault in Perth, Australia), Bitcoin is starting to come under more and more scrutiny. Why one may ask?
Perhaps these headlines will help:
“It’s Going A Lot, Lot Higher”: Novogratz Sees Bitcoin “Easily” Reaching $40,000 Next Year, Ethereum Tripling
Based on those headlines and stories above, just a small sampling of the HUNDREDS like this I have read, you are either a survivalist nutcase, a neo-Nazi, or genius to buy cryptocurrencies at any price.
However, that’s not how any realistic investing works.
I’m not a preacher. Hell, I’ve been burned by the gold bug and caught numerous diseases on my privates from the silver virus. One understands, however, that when one buys physical properties, one actually can hold what they own and as the cycle rotates, break even or a return to profitability and an opportunity to sell appears. Unless an investor is holding a hooker as a house girl (or guy, whatever floats your boat), and paying her/him in cryptocurrency, then there is no real return. As I outlined in an article last night, individual investors are finding out what happens when piggish investors with 48 inch waistlines all try to exit through a 20 inch wide door.
The only real difference between now and 2000-2001 is that there are actual regulators and regulations regarding the .com stocks which imploded and some degree of satisfaction that those who participated in some, not all, of the Ponzi schemes were dealt with. With the cryptocurrencies, should such a decline below $2,000 occur, your are involved in a very personal act which can only be described in polite terms in public:
So what does this report from Quinlan and Associates from January 11th say that is so alarming? (link available from this Business Insider story)
Below is one brief excerpt:
Quinlan & Associates, an independent strategy consultancy specialising in the financial services industry, has released a landmark 156 page report looking at the global cryptocurrency industry.
The report, titled ‘Fool’s Gold, Unearthing The World of Cryptocurrency,’ takes an in-depth look at the fundamental functions of cryptocurrencies and their surrounding ecosystem, powered by blockchain technology. It also seeks to demystify the ongoing debate in financial markets (and thewider economy) around the true value of Bitcoin (BTC) and its future outlook using detailed valuation models, supported by industry interviews and survey responses from over 1,500 individuals working predominantly in financial services, FinTech, consulting, and technology.
‘Despite fulfilling most of the characteristics of a traditional fiat currency, cryptocurrencies are largely being utilised as speculative investment assets, leading to considerable volatility in their value. This lack of stability, together with soaring valuations, means they are rarely used for payments,’ said Benjamin Quinlan, CEO & Managing Partner and lead author of the report. ‘In the earlier part of 2017, many of the gains in BTC could be tied to ongoing discourse around its potential regulatory legitimacy. Since then, however, its popularity and infamy has appeared to fuel a widespread “fear of missing out” (FOMO), characteristic of most bubbles. Consensus regarding its future value also remains virtually non-existent, with valuations ranging from USD 0 to as high as USD 1,000,000.’
In other words, it could be worthless, or worth more depending on your point of view, not based on any real measure of value or currency viability. Some of my bigger skeptics, and you “young’uns” who did not listen to my old radio programs are not aware of the idea of currency viability. For example, for now the fiat currency known as the Japanese Yen is viable because it can be readily converted into any other currency or exchange of value, anywhere in the world (except North Korea) where the one trading it will receive either currency, commodity, or property similar to the valuation of the Yen in local terms. The same of course can be said of the world’s first universal currency, gold.
Yet Bitcoin and the other cryptocurrencies face a major problem:
Central banksters do not like competition.
Hence there has been little if any movement by the major powers to provide an instrument of clearing or convertibility for any crypto into local or domestic exchange. This means that the risk of regulatory destruction of value is ever present and the risks provided by this scheme, not counting the hackers, is ever present and increasing. Once the larger central banks determine that cryptocurrencies are fraudulent instruments or ‘schemes’ as they like to call them, the valuations will plummet as those in last will not have the opportunity to sell and trade back into fiat currencies from whatever nation will let them.
Thus this part of the report should provide some insight as to a potential outcome for the crypto-bubble we are witnessing (more from the report linked above):
Using two key approaches to value BTC as both an asset and a currency, we determined the underlying value of BTC to be USD 687 and USD 1,780 respectively, deviating significantly from where it is currently trading,’ added Hugo Cheng, co-author of the report.
‘We are even less optimistic around BTC’s long-term value as we see it ultimately being ruled out as a mainstream form of payment. We believe this will exert greater downward pressure on its price and forecast it to trade at ~USD 810 by 2020, if not lower.’