Crypto rant

Anyone reading this blog knows I've been a crypto skeptic for some time. This post I made in Feb 2021 says it all. This year we have seen the unravelling of crypto with the latest being the FTX fiasco.  Due to the lack of regulation, there's a ton of scams and leverage underpinning the entire crypto space which is coming to light. I doubt this unwinding is over.  BTC in its current form will end up going to 0 in the long run because it's fundamentally worthless - you can actually make the case that it has negative worth given the environmental damage it creates. Eventually people are going to wake up and question the lunacy of BTC.  How the fuck can people not see how utterly asinine and wasteful the process of  "mining"  bitcoin is? Even if you believe in the possibility of crypto having a value, clearly there must be a much better way to manage/maintain it than to waste an astronomical amount of energy like BTC does.  BTC is the top crypto by "market cap" simply because it the was first crypto invented, nothing more.  Regardless of the system that is used to maintain any crypto, they are worthless unless they are backed by something of actual value. You can't just simply create a "coin" out of thin air and it expect it hold any value aside from greater fool buying which eventually peters out. Mind you, this greater fool effect can go on for quite some time as it did for crypto, but now the jig is up because the last and biggest batch of fools - institutional money - joined in just before the last peak and subsequent crash. In order to revive crypto aside from short term bounces, you are going to need a fresh batch of  greater fools bigger than the last cohort of bag holders and that  probably doesn't exist. 

After the GFC many people had  resentment towards the Fed and governments given how it was handled which very much persists to this day. So, some person or group invented  BTC and basically said "we  have come up with an alternative currency free from any meddling by governments."  Such an idea could garner a cult-like appeal from anti-establishment sympathizers which it did. The other main appeal was the clever blockchain tech that underpinned BTC. Regardless of the appeal, BTC was able to capture the imaginations of people on an incredibly wide scale. It had more than a few crashes and recoveries along the way all of which led to new highs, but the only reason why BTC was able to recover to new highs was because it was able to recruit a fresh batch of greater fools larger than the previous batch. The last run to $60K was the result of the last and biggest batch of greater fools - institutional money. The collapse of FTX exposed some of these institutional investors such as the Ontario Teachers Pension Plan. How embarrassed and ashamed must they be? This latest fallout all but assures that institutional money will be sellers, not buyers from this point on. 

The bitcoin rise and fall is very similar to that of dot com stocks in mid-late 1990s.  When dot com stocks first started turning heads it was driven primarily by retail. The internet was hyped to be the next big thing set to revolutionize the world and the way to profit from this was to invest in dot com stocks. It didn't matter that most of these companies had no earnings or real business plan, the fact that they had dot com after their name was good enough as it  symbolized that they were part of the internet revolution.  Dot com was initially scoffed at and dismissed by the so called institutional investors,  but many under-estimated how long and how intense the frenzy was going to be. Some of these skeptical institutional folks shorted the dot com stocks only to get badly burned. By the time the bubble hit its peak the institutional money had capitulated and jumped on board because they simply couldn't afford to miss out anymore. Then, just like what happened with BTC and other crypto, they had to come up with rationalizations to buy. At the end of the day, it was FOMO and greed that did them.  The crytpo Superbowl commercials this year marked the pinnacle of the euphoria just like the dot com Superbowl commercials in 2000. Crypto will survive, but the days of  creating coins backed by nothing and expecting success are over. 

I can sympathize with the Fed haters and the notion of seeking an alternative to fiat currency. However, you can't just come up with a coin and say "hey everyone, let's start using this instead of the US dollar as an expression of our hatred of the system" and expect it to work long term. This type of  "expressionist"  investing also underpinned meme stocks.  Such a thing can't work long term without anything of true value underpinning it.  The only thing underpinning it is inflows from the herd.  The herd is fickle, it's unreliable, it has no obligation to be loyal and when the inflows stop and the price starts sagging, it's just a question of when not if, the heard is going to stop supporting it and move on.  But wait, aren't fiat currencies backed by nothing? No. There's a central authority that enforces it; that deems it to be legal tender and the only way to transact, pay taxes and settle debts in the country it represents (many countries also do business in US dollars). Therefore you are essentially FORCED to use fiat currency of the country you reside in or do business with, the same way you are forced to abide by the laws and regulations of that country.  Nobody is forced to use a crypto coin in any way.  The herd can easily move on from whatever coin is popular at the time to another coin or get turned off completely by crypto. A central authority on the other hand, is always going to be there enforcing that same fiat currency. Do authorities  abuse or misuse their powers? Of course; some more than others, but they provide stability and assurance which is critical. Central authorities also enforce laws and regulations which is obviously critical. Again, the system is not perfect but it's necessary to have a government enforcing certain things otherwise we would be  living in a jungle of chaos. And yes, I know there are plenty of countries in this world that have oppressive governments. It should be obvious that I'm referring to democratic governments and not regimes like North Korea.  

The argument that crypto's value is a reflection of the blockchain technology or anything along those lines is pure nonsense. Once again, this is expressionist investing.  Think about the Microsoft Excel program which creates spreadsheets (loosely analogous to blockchain which creates crypto). Cleary, the excel program has a worth as it creates spreadsheets which can be used to keep records, make calculations, ect., but what is the value of the spreadsheets it creates? Zero...with the exception of when it contains information that a person or entity may value, but even in such cases, it's the info not the  spreadsheet itself , that has the value. If Microsoft were to announce that all their excel programs would only be able to generate a combined lifetime total of 21 Million spreadsheets, would that then give these spreadsheets value? No. Because there are other companies that can generate unlimited spreadsheets. So you see, there's nothing special about a spreadsheet.