Sorry, I still don’t get crypto
The silly season.
So in that spirit, let’s step back into the crazy world of cryptos…
Cards on the table – I still don’t really “get” crypto.
Bitcoin has shot up again to hit a new record. That’s nice – I own some bitcoin (a “just-in-case-I’m-wrong-and-it-goes-massive” holding, bought with funds I’m not really fussed about losing).
I’d be hard pushed to give a coherent account of why it should be at this level. Or, indeed, why it should be lower. Or higher.
At least the dot-com bubble had the story of how the internet was unleashing a brave new world (a story that turned out to be true, even if it came nowhere near justifying many of the stock valuations at the time).
Crypto-currencies look nigh on impossible to value – to me at any rate.
Many crypto-currencies take the form of an electronic token that’s attached to some niche project that may or may not come to fruition – and may or may not be worth very much if it does.
A random example plucked from CryptoCompare (and I mean random; I’m not picking on this particular coin, it was just the first one I clicked on and it illustrates the point):
“Storj is a decentralized cloud storage platform that allows anyone to rent their idle hard drive space and to earn a revenue by doing so. Endusers can use Storj to store their files at competitive prices and within a p2p network that is secure from sever downtime, censorship and hacks. Payments within the Storj network and conducted with the STORJ token, an ERC20 Ethereum-based token.”
What the hell am I supposed to make of that?
Actually, the phrase “competitive prices” did jump out at me.
Quite a few of these “altcoins”, as they’re known, involve people letting others store stuff on their computers.
So if they’re all competing with each other, at those competitive prices, where’s the economic moat?
What’s going to stop margins getting compressed and compressed until there’s not much value for investors?
Or will there be some kind of winner-takes-all effect and I can cash in so long as I back the winner?
At least, that’s how I might begin analysing this if it were a straightforward company and I was considering whether to buy some equity.
But we’re not talking about equity here. We’re talking about… actually, I’m not entirely sure what we’re talking about.
My hunch is that with around a thousand of these things floating about, the connection between the value created by the project and the value of the coin will differ for each one.
It’s an informational minefield. And if you’re not tech savvy – and I will never claim such a mantle – then it’s pretty daunting.
And yet, a Zambezi of hopeful money has flown into crypto this year. I suspect the lion’s share – including my meagre investment – is what some uncharitably call “the dumb money”.
There it goes, sloshing around, trying to make sense of it all, like a dog confronted with a Rubik’s cube.
If you want a visual metaphor, you can do a lot worse than this tweet.
Here are a couple of reasons this whole thing feels chaotic:
Bitcoin recently split in two
There’s now “Bitcoin Cash” as well, the New Coke of bitcoin.
As far as I can make out, Bitcoin Cash is supposed to be easier and more efficient to make payments with.
One of the problems with the blockchain is that transactions can take ages to go through. That’s the price of checking the entire history of all previous transactions, I guess.
Bitcoin cash is meant to address this (don’t ask me how, not my bag).
It’s not yet clear though if enough people who currently accept “trad” bitcoin will also accept the new one. If not, then it’ll ironically be harder to pay for stuff with it.
Anyway, the one thing you could cling to in this whole crazy crypto space was that bitcoin was the oldest, biggest, most established of the cryptos.
You blew it up! Ah, damn you! God damn you all to hell!
(Reminder: the old bitcoin has actually hit a new record since the split, so maybe “everything’s fine”)
A mysterious trader is apparently manipulating bitcoin
That’s what this Cointelegraph story says. And who are we to question a website with “coin” in its name on such a subject as this?
He (it’s bound to be a “he”) has been dubbed “Spoofy” because he, erm, submits a lot of spoof trades.
Sitting on a vast pile of dollars and an equally vast pile of bitcoin, he’s meant to be submitting fake orders on the Bitfinex exchange to try and drive the price higher, or occasionally send it lower.
Why? No one knows…
That’s the story, anyway.
If you do this in the stock market you can go to jail. In the unregulated, twilight world of crypto-currencies, however, such activities appear right at home.
Want to dive into the fun?
So some of the major players in bitcoin can’t agree what it should actually be…
Meanwhile, “Spoofy”, assuming the story itself isn’t a spoof, is pushing the price of bitcoin around at will…
Throw in the regular hacks and the odd flash crash here and there and you’ve got an, ahem, adventurous asset class.
The kicker is though that this really could make you a really good return.
You probably won’t know why…
You’d be hard pressed to say you deserve it…
But when something’s a mania (and this clearly is, I don’t care what anyone says), then there’s no way of knowing just how high the top will be.
Just don’t get burned by using money you can’t afford to lose – this thing could make you rich or it could pop tomorrow.