The Cryptocurrency Adoption

Have been wrong so far with Bitcoin and all the other Cryptocurrency in terms of price appreciation. Click here for my first post on it. That was written in 2018, and from a money standpoint I would love to have bought in that year. Right now, you should feel the same way. However, I don’t have a time machine and I still look at these digital assets the same way today as I did back then.

Cryptocurrencies remain are a misnomer at best, a fraud at worst. If they are going to be adopted as an asset, fine. Bitcoin alone will not be and should not be adopted as a global single payment system. Ethereum should not be the only platform to build the next internet on. That’s the problem with us. We’re always looking for the next iteration on what is already pretty awesome. The internet is awesome. Now we want it to be decentralized, while still using the current backbone protocols.

I look at the crypto market like the equities market. These instruments are man made (have scarcity), carry a high degree of risk, but unlike the equities market ARE NOT usually tied to some productive underlying asset. Ethereum and Cardano may have some value under the token layer where applications can be built, but why? Is it because the dollar is being inflated to oblivion? Or, is it because these new applications actually solve real problems that people are incapable of solving?

This is where my skepticism reaches epic proportions.

I’ve been in finance for two decades, analyzed complex assets at every level of the economy, and I still don’t see any other reason than popularity and the greater fool theory as to why people want to own the digital assets. Also, the ownership of the high valued tokens (e.g. BTC, ETH, etc) is concentrated in very similar ways to that of high valued equities. It’s like website programming circa 1998; it was a skill few people had, but by 2018 no one needed to worry that much about it because well… plug and play. Right now, it’s hard to create your own crypto, but give it another decade. That could be a deflationary process that crushes the token value while the underlying blockchain remains used for building. In a truly capitalist environment, the price of the token would become less valuable as the use value of the underlying asset (i.e. blockchain, apps, etc.) gets more valuable.

A penny saved WAS a penny earned…

It’s pretty dumb to use the same inflationary metrics when thinking about technological use value of blockchain or cryptocurrency (still hate saying it) as we do with overall economy. Inflation is not a good thing. Too many companies are miss priced on the high end not because of value alignment, but rather because of inflation… in other words, the dollars used to buy the stock are getting cheaper rather than the company itself gaining value. So, we have a market where many companies are trading at 10x to 30x sales without any path to profitability. There’s no reason to get profitable when interest rates are so low and dollars keep getting pumped into the economy. At that point, growth is key… and at any cost. In other words, there’s a lot of bad capital allocation decisions being made hourly at the moment.

This is why it seems that many people want crypto to keep going up and up. As long as the music keeps playing, no one knows the house is built on sand ready to crumble. Fact is that the original thesis has been crushed, but I’m not saying that crypto is a bad idea or even worthless. Bitcoin and ethereum could be like Microsoft and Oracle or myspace and friendster when the next flip happens… TBD. These fraudulent currencies could be banned by the first world altogether; however, that’s unlikely until the tax liabilities are extracted first. There’s a lot of unlocked value in them for governments too and a collapse would mean billions of missed tax revenue.

Democracy demands the decentralized crypto market to grow, so we’ll see.

Notes from my journey. 20+ years analyzing and forecasting complex assets at the highest level of the economy. Today, I run a membership for capitalists.