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Tales from the Cryptomania – Part I

Currencies / BlockChain Dec 20, 2017 - 05:18 PM GMT

By: Brady_Willett


Hoping to strike it rich, “junior miners” like to dig holes in the ground after they secure funding. When times are good money is easily attracted and many holes are dug, and when times are bad some juniors are forced to close up shop.  Then we have today:

“Guyana Goldstrike Inc. is pleased to announce that the Company has been meeting and consulting with experts in the blockchain and cyptocurrency sector to ascertain the feasibility of financing the Marudi Gold Project through the issuance of an Initial Coin Offering (“ICO”) on the Ethereum blockchain platform.”  Guyana Goldstrike

Why, exactly, does Guyanna require “cyptocurrency” experts to help fund its drilling activities (and yes, in a mad rush to press Guyana misspelled ‘cryptocurrency”)?   Because, akin to attaching a dot com at the end of your name in the late 1990s, aligning yourself with anything crypto related today can be pure gold.

The latest, and perhaps greatest example of this phenomenon is seen in Croe Inc. which changed its name to Crypto Company in October and has watched its stock price soar by more than 2,700% since.  In Crypto Company’s last 10Q for September 30, 2017 the company posted $3.5 million in net equity, little or no sales (beyond some crypto sales), massive losses, and massive shareholder dilution.  Contrast this against Crypto Company’s market cap, which before yesterday was more than $11 billion.  Put another way, with $6,000 (yes, six thousand dollars) in actual business sales through the first 9-months of 2017, CRCW was being valued at more than $11 billion.

Suffice it to say, the powerful and seemingly unshakable wave of money chasing anything crypto is at threat of leaving the realm of passing fancy and becoming a danger to the entire financial system.  And while a recent survey of 50 academics suggested that crypto is not a threat to financial stability because it is too small, it could be naive to think that when crypto fever breaks the fallout will be easily ‘contained’.  To be sure, beyond the mere $600+ billion market cap of the top 100-crytocurrencies (versus $20 billion to begin the year), what cannot be measured is how quickly the madness is spreading.  The cryptomania is compelling some to seek out leverage/debt to speculate in crypto, others to quit high school to count their millions of dollars in Bitcoin, and Bloomberg to give more and more airtime to “different mental model than we use in equities” type tales.  Moreover, and as Birinyi recently noted, the crypto craze is already impacting investor psychology and equity prices themselves – crypto is not your ordinary mania.

Something Like A Phenomenon

We are told that this ‘new paradigm’ of investing (in digital currencies that have been around for less than a decade) has a lot to do with limited supply; that 80+% of Bitcoin owners are not selling and demand will surely sweep prices higher still to $30,000, $40,000, $50,000, $100,000, $300,000, $500,000, and, perhaps, just maybe, $1,000,000.  We are also told that new and exciting products are sure to dazzle following Bitcoin’s historic launch on the CME and CBOE; that soon cryptocurrencies will be readily available in ETF form, derivatives, and other concoctions.  Finally, we have been told that crypto, which would appear to be a central banker’s kryptonite, is actually going to be accumulated by central bankers in 2018.

The SDR and G7 country currencies will be forced to alter their foreign reserve weightings and eventually include a basket of cryptocurrencies.  Coindesk

What we are told considerably less often is that transaction fees have been skyrocketing of late and that there are growing hacking, regulatory, and (eventually) short-sided speculator powers aligning against the cryptos.  For the latest on this front consider the SEC, which halted trading in Crypto Company yesterday without actually listing any specific charges or wrongdoing (PDF).  It is as if the SEC is screaming that $6,000 does not equal $11,000,000,000+!  Question is, who, if anyone, is listening?

In short, the cryptomania has quickly turned into one of the most fascinating episodes of speculation in history.  The onlooker cannot help but be entertained as exchanges, companies, institutions, governments, regulators, hackers, and speculators align themselves either for or against the growing pile of crypto being mined into the consciousness of investors across the world.  Tales of new ways of valuing things abound in cryptospeak, the downfall of government backed fiat is supposedly near, and it all seems to make perfectly rational sense because some have struck gold in crypto and the naysayers are at a loss to say when the times will turn bad…

By Brady Willett was launched in January of 2000 with the mandate of providing an alternative opinion on the U.S. equity markets.  In the context of an uncritical herd euphoria that characterizes the mainstream media, Fallstreet strives to provide investors with the information they need to make informed investment decisions. To that end, we provide a clearinghouse for bearish and value-oriented investment information, independent research, and an investment newsletter containing specific company selections.

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