With “crypto” currency being all the rage nowadays, it’s important that we’re able to consider whether there’s actually any value in the many “offers” being perpetrated to try and get you to “buy” into the whole “Bitcoin” phenomenon (HINT: there isn’t).
The key point many institutional investors (most notably Jamie Dimon of JPMorgan) have made is that “Bitcoin” doesn’t hold value. Not only this but the many stories of people “making money” with it are almost entirely due to speculative trading (“buying” at $200 and “selling” at $5,000).
The problem for most people is that the”coins” themselves are almost entirely worthless. They don’t do anything without the infrastructure which supports them, and unfortunately that infrastructure has not been adopted by many consumers & businesses yet.
This means that if you are interested in looking at the “crypto” market as an investment (don’t), you really need to look at how the “value” of the various “coins” is predicated and thus whether they’re worth anything, let alone the crazy prices that rampant secondary market traders have pushed them to…
- “Everyone” is Making Money… But The Assets Don’t Pay…
The biggest sign of a scam is a lack of verifiable sources of revenue.
In other words, the main way money is made in this market today is by traders “flipping” coins onto other people. “Flip” is a term used to describe the idea of buying an asset cheaply, doing minimal work to it in order to make it look better, and then selling it for high price.
Most often used in the real estate market, it’s become synonymous with the Internet and “Crypto”. The Guardian had a few things to say about that. The point is that most people have absolutely NO clue as to how any of the “money” they’ll be putting into the “crypto” system will be balanced.
With stocks, the balance comes from the asset the companies hold, the revenue and profit derived from which determining the price of said asset. This is known as intrinsic value because it’s the core of what determines a price to be determined.
Thus, when observing the “crypto” market – ask yourself where the money is going to come from. If a “Bitcoin” is worth $10,000 today – what justifies that price?
Just because someone bought the coins when they were $200 (and they’re now “worth” $10,000) doesn’t mean they have any intrinsic value…
- No Proof
Next, and this applies to many of the emails which people have been receiving to encourage you to invest into “Bitcoin” – where’s the proof that a “coin” is worth anything?
The most important thing to remember is that with the likes of stocks & shares (known as “securities” in the finance world) are all ratified with the GAAP (generally accepted accounting practices) protocol – a system of book keeping which gives a general infrastructure for calculating the value of a business.
Unfortunately, this doesn’t exist in the “crypto” world – where prices are based on a rampant secondary market that’s based on hearsay and a global network of “traders” who are buying/selling these “coins” through the Internet.
Again, whilst this might seem novel and new, it doesn’t mean the tradeable goods have any value at all. With the majority of the buyers of these coins only interested in reselling them, the “market” is basically a huge pump-and-dump scheme designed to make a few people very wealthy.
Ultimately, the is absolutely no PROOF that any of the various “coins” have value, or have ever held value. And unless someone is willing to give you verifiable evidence to support claims of ANY fianancial gain, you should not trust them.
- No One Understands Them…
Whilst you could present similar arguments for the likes of Google and Facebook (when they first started), the reality is that those companies had a real business proposition at their core. The many “crypto” currencies do not (at least on the surface).
The real “value” of the “crypto” currencies lies in the adoption & use of the “blockchain” database system which underpins them. Blockchain is an opensource database system which basically runs on 100’s or 1000’s of servers (removing the need for a central provider).
Whilst “blockchain” has been around for almost 10 years, most people only know about it because of the growth of “Bitcoin”.
The simple fact is that “blockchain” has been designed to give people access to data that’s completely “open” and “decentralized”, allowing for a myriad of “new” applications to be built on top of it.
These “decentralized” applications are designed around utilizing certain data within the “blockchain” system in certain ways. For example, “Bitcoin” is an application designed to be a “public decentralized financial ledger”, and Ethereum was designed to provide “smart contract” technology for use in the likes of ride sharing etc.
The point is that no-one is really talking about “blockchain” because they neither understand nor care about it. They are only really only concerned with the “crypto casino” and how to make their “fortune” with it.
- Even The Taxi Driver Is Giving “Crypto” Tips
There’s a famous story (whether true we’d have to see) whereby Joe Kennedy (father of JFK) sold all of his stock portfolio in 1929 because he heard a cabbie giving him stock tips.
Whether true or not, the moral is clear – when everybody’s making money in the market – and especially where even a lowly taxi driver (nothing against them but they’re not regulated by the SEC) are giving out stock tips, you need to run a mile.
… and that’s for stocks which are paying dividends!!
“Crypto” currencies are at a level where even housewives are giving their husbands “tips” on which coin to buy, which to sell and which might be worth “investing” into.
The reality is that “crypto” currencies are not even real assets (they only exist in a demi-legal “digital exchange” market) and are thus highly risky and volatile. The “price” of a “coin” is determined not by the mechanics of a well oiled economic system but the whims and greed of speculative traders each trying to out-compete each other for the last vestige of profits.
If you’ve heard ANY “tips” to buy “Bitcoin” or other “crypto” stocks from anyone other than a regulated financial / wealth manager (and by the way, always get a second opinion) you should run a mile. The “market” is too fat to last and will likely implode under its own weight very soon.
Our recommendation (and again, we’re not financial or legal experts – this advice is for educational and entertainment purposes only) is to sell any “coins” you have before the rush begins. Don’t worry about waiting until it hits $20,000 – there will be a point when the masses will realize that each coin is worthless and when that time arrives, the market will plumet just like it did with tulips in the 1630’s.
- Time Is Ticking
The biggest sign you may be looking at a scam is when it’s time limited – either by design or naturally. Scarcity tactics have been used by millions in marketing scams before, but with the world of “crypto” it’s often used as a way to get people to part with their cash no matter what happens.
The truth of the financial markets is that money is always flowing, even when there is a crunch/crisis, someone somewhere is still buying products. The difference lies in how fast the transactions occur.
In an abundant economy, many purchases are fuelled with the “future” (on credit), on the understanding that a buyer will have the income over the next 6, 12 or 24 months to pay it off. This is pretty normal and as long as you’re able to balance spending with income, things should be okay (as long as you’re buying assets).
Little do most people realize that “investments” work in much the same way… except rather than measuring the “income” someone would earn, the investment is measured on how much it will likely yield / earn in that timeframe.
Thus, when considering “investments”, you’re really balancing future earning potential with the current price. The secret is that the price can go down as well as up, meaning that if someone is presenting an “investment” opportunity (typically “crypto” or it can be stocks), if they are time limiting the purchase, it will almost certainly be a scam.
The ONLY time limited nature on the various “crypto” coins is how close they are to the cliff edge. They have ALL the hallmarks of a bubble – they’re just waiting for the first domino to fall in order to see when the rest will come falling down.