There’s a difference between crypto-currencies and blockchain. Keeping the two separate is important.
One – the blockchain – is a technology. It may or may not be the next best thing since sliced bread. Mass adoption is not guaranteed and if it is, it will take time. It could follow the path of the internet. Or it could be the next Segway or Betamax or Laserdisc…you get the point. It’s too early to tell but that’s what makes it interesting.
The other – the coins – is a means of exchange. The coins may or may not be a necessary part of the technology (companies are using the blockchain without the coins).
Until that’s settled, it’s being used to gamble and speculate in. People see the prices going up really fast, see other people making a killing, get caught up in the enthusiasm, and “invest” because they want to get theirs. They’re not doing research, don’t understand the technology behind it, or why a certain coin was created. They hear about a new coin offering and buy it at X, hoping to sell it later for 20X or 100X. But this only works if prices always rise (they don’t).
Being a product of the Computer Age, the blockchain peaks my curiosity, the coins not so much. I don’t follow coin prices (my Twitter feed fills me on major moves). I never bought any (no plans to do so anytime soon either).
I see the entire crypto-coin craze as an interesting social experiment – a free education – in the psychology behind FOMO, bubbles, and the lengths people will go to to make a quick buck. Watching people go crazy over rising prices is a great learning experience. The crazy reaction – this week – toward falling prices is equally educational.
Anytime enthusiasm spikes around something investing related, we get flooded by the rosiest picture possible: “It will revolutionize everything. Everyone will use it. Yadda yadda yadda. Nobody can lose money.”
That’s exactly how the Dotcom Boom played out. Every day, there was a story about a new IPO that doubled, a dotcom stock that split and rose 30%, a hot new Internet mutual fund you had to own, or the instant millionaires created out of thin air. Bear cases were brushed aside as being ignorant of the new paradigm.
It was all true. The internet changed everything. Everyone is using it. Except, it took a hell of a lot longer than anyone expected, almost all of the original Dotcom companies are dead, and a ton of people lost money.
So the best thing you can do is look for opposing views. Finding the bear case scenarios in a bull market may not change your mind or affect your decisions. But it, at least, offers a different perspective from the one you’re being bombarded with every day (the same is true of finding the bull case in a market full of bears).
In the case of crypto-coins and blockchain, I’ve linked to a couple bear cases before. I got around to reading/hearing a few others this week:
- Crypto-pocalypse with Preston Byrne – tackles the effect of regulations, the possibility of a blockchain without coins, and more.
- The Fatal Mistake Crypto Investors are Making Now – tackles scams, the difference between coins and blockchain, and possible valuation
- How a Criminal Defense Attorney Thinks About Crypto Currency – tackles the legal side, or illegal side, from scams, fraud, evading the IRS, the SEC and regulations.
- Beyond the Bitcoin Bubble – this has its own utopian spin on it but it tackles the blockchain technology, how it’s being hurt by the bubble in coins, and explains why it’s not a “currency” story.
- Risky Business – M. Housel
- The “Mental” Game in Investing – Behavioral Value Investor
- Poker, Speeding Tickets, and Expected Value: Making Decisions in an Uncertain World – Farnam Street
- The Buoyancy of US Equities – Musings on Markets
- Future U.S. Equity Returns: A Best-Case Upper Limit – Philosophical Economics
- Low Economic Volatility Won’t Keep Markets Calm Forever – B. Carlson
- Fear the Stock Market’s Exuberance, Not the Economy – T. Duy
- Business Lessons from Blues Guitarist and Club Owner Buddy Guy – 25IQ
- BlackRock’s Message: Contribute to Society, or Risk Losing Our Support – NY Times
- With Your Smartphone, Fear is Never Far Away – Behavioral Scientist