I’ll like to put down my stance regarding cryptocurrencies.
Bitcoin has surged past its 2017 highs. Once again, people are flooding Facebook on how to buy Bitcoin, and “experts” are gaining attention on the news.
We have seen it before, and it wasn’t even that far back. The same thing happened in 2017.
Just before an 80% crash.
What does Bitcoin Solve?
I think in their current form, cryptocurrencies are shams, and their entire premise is a house of cards.
It doesn’t matter to me if I appear wrong or if Bitcoin doubles after I write this. I held these views when Bitcoin was USD $10,000, and I’ll still hold these views even if Bitcoin becomes USD $100,000. The things I talk about here would still be relevant, perhaps even more so.
The root reason why I believe Bitcoin is a useless and speculative asset is that Bitcoin has no utility or value to society. It’s only value is how much the next fool is willing to pay i.e. the Greater Fool theory.
A lot of my investment philosophy is about investing in companies which create products and services that make a difference, like Tesla and AMD. Despite their high valuations, they at the very least generate products which are desired and add value. Tesla addresses climate change and will dramatically improve transportation. AMD builds better and faster chips, enabling people and businesses.
What problem does Bitcoin solve? It doesn’t make transactions better because it has higher transaction costs and more cumbersome than cash. It can’t be used as a medium of exchange because few are mad enough to accept a currency that can lose 80% of its value at the drop of a hat. It cannot function as a safe haven, and its track record is terrible at that (e.g. crash in Mar 2020, just like equities).
It won’t replace national currencies. There is no chance that any government would accept that. They can and will regulate it to death. We have already seen it in XRP. In addition, why wouldn’t governments create their own digital currency, like what China is doing? Why would they hand control and power to a group of crypto insiders? Isn’t that dramatically unfair to the vast majority of people who don’t have cryptocurrencies? Rather than a “democratisation” of money, cryptocurrencies is more about consolidating and handing power over to a select elite.
Will Fiat Currency Collapse?
I also read a lot about how fiat money is bound to fail. Believe me, you would not want to cheer for this to happen. It would be an incredibly destabilising move, and would have profound and catastrophic effects. Economies would be essentially paralysed, and we will be rioting in the streets. We might not even have electricity.
In such a situation, I find it very hard to imagine that people would start trading and transacting in Bitcoins or crypto. Think of what you would do if businesses, supply chains, and jobs collapse. Would you accept Bitcoin? Can you eat it? We are far more likely to start trading in food or gold. In fact, history has shown that when a country’s currency has collapsed, people usually start trading in another country’s currency e.g. USD or Euros.
The only people who are cheering for fiat currency to collapse are those who have hoarded coins themselves. And even in that situation they are unlikely to profit, because society itself has crumbled already. No one should want a failure of fiat currency.
I’m aware that there is a passionate group of cryptocurrency believers who would disagree with me. That’s alright, this post is expressing my own views which I accept can be wrong. We can be free to disagree. It’s also why I post this privately, as I would get skewed by many members of the public.
I don’t mind if you are a Bitcoin believer and have made a lot of money on it. I’m really glad for you. It doesn’t make me poorer knowing you are richer.
But I think there are far more people who have lost their life savings to Bitcoin, whether its through the fall in price or having it stolen from their wallets. I know that its a bad sign when people are once again asking how to buy Bitcoin. They don’t seem to remember or care that Bitcoin collapsed in 2017, without any real reason.
It reminds me of Genneva Gold back in 2012. It was a gold trading scheme, where thousands were cheated out of $45 million. The astonishing thing is that scammers got the contact details of those investors, and scammed some of them again, through another company called the Gold Guarantee. It was an easy sell because it was proven that these investors are already gullible. I can think of few things that are sadder than being cheated out of your life savings, much less twice.
It’s going to happen again and again, with different sorts of assets and promises. The human condition is such that memories are short and greed is forever.