Tuesday 16th January 2018
Dumb always gets punished in the end….
Dumb is not like Aussie flu….
Dumb doesn’t just debilitate its victim for a spell before losing its power and disappearing. Dumb is a chronic condition that endures and recurs and resurfaces time and again….
Dumb can’t be treated with hot lemon and honey or a course of anti-biotics. You can’t sleep it off or sweat it out….
Dumb is not something that can be cured. It can only be punished….
And right now, many investors are setting themselves up for punishment because they have fallen victim to the latest outbreak of the ‘dumb’ virus….
- Recognize the signs….
There are four symptoms to look out for with the current strain….
One: slavish devotion to the fad of the day….
Two: deep-seated anxiety based on the fear of missing out….
Three: a reckless determination to act without proper due diligence….
Four: the wrong-headed belief that positive results are guaranteed….
These symptoms combine dangerously to blind the victim to good sense….
They bring about a delirium that renders the sufferer irrational and encourages him to behave foolishly and against his own best interests….
The current outbreak is particularly virulent. We see this from the peculiar signs and strange behaviors playing out around us….
- Joke investing….
What else but a potent malady that addles the mind and turns grown men into feeble-minded simpletons could explain a situation like Dogecoin?
In case you don’t know, Dogecoin is a cryptocurrency with a special distinction – it was created in 2013 by developer Jackson Palmer as a joke!
It was always intended as a parody crypto-coin. It was never intended to be taken seriously….
Palmer himself didn’t invest until last year. And the Dogecoin system hasn’t released a software update in 2 years….
But no matter. When the dumb virus strikes, investors lose their minds and crazy things happen….
Dogecoin now has a market cap of $2+ billion. Its price rose 6000% in 12 months. And it’s now listed in the top-30 most valuable cryptocurrencies….
- Does thought come into it?
What do investors think they’re buying when purchasing Dogecoin?
Do they care? Did they take time to find out?
If they did, what triggered the ‘buy’ response? If they didn’t, why not?
Or is it just a case of jump on the hot game, buy, wait for the greater fool, sell and then get out? It would appear so….
I wonder if it is this kind of foolishness that creates a speculation bubble? Or if it is the speculation bubble that generates this kind of foolishness?
Or does a time arrive when the investor’s fear of missing out on easy returns feeds both the foolishness and the steady inflation of the bubble?
I don’t know. The interdependencies are highly nuanced and difficult to break down. The important point is that the dumb virus is very much at work.
Investors are doing extraordinary things and producing strange outcomes that make little sense in daylight….
- Missing the point….
Look at what’s been happening with Ripple….
At its most fundamental, Ripple, like Dogecoin, is software code that’s then been designated a cryptocurrency….
It has no current utility or use beyond being tradeable as an asset on unregulated exchanges….
It doesn’t even possess a key feature that is driving the crypto-boom – freedom from centralized control….
Bitcoin is beyond any centralized interference. It exists and operates beyond the power and authority of government, institutions or any one individual. The ledger is essentially untouchable….
Not so with Ripple – which is owned and controlled by the company that created it. It is not free from the threat of interference in the way that Bitcoin is.
As an alternative to centralized domestic currencies, Ripple misses the point….
- A spike with its roots in nothing….
Nevertheless, investors weren’t concerned about that. Most weren’t aware of it. Many still aren’t and never will be….
Last week, all those investors were interested in doing was putting billions into the market – driving Ripple to $3.40….
Ripple’s co-founder and the largest holder of Ripple tokens, Chris Larsen, found himself billed as one of the richest men on the planet – worth $60 billion….
Nothing ‘happened’ to produce the price spike and the increase in Ripple’s value – or, indeed, Larsen’s….
Ripple hadn’t signed a deal, made any money or purchased some income-producing asset….
There had been no new technical development or strategic move forward. Nor had there been any widescale uptake of the crypto….
It was a price spike built on nothing whatsoever and nourished by nothing but hot air….
- In search of life-changing profits….
The spike came about simply because investors suddenly showed-up and piled in….
Perhaps some influential cryptocurrency ‘whale’ issued a tweet or posted on some Reddit forum….
Maybe that’s what ignited the manic episode….
The crypto-markets seem to me to be like parched fields in the middle of a summer drought….
One spark and the fire spreads fast. It is out of control and blazing into the distance before you can fill a bucket with water….
These spikes in activity start small but grow rapidly….
A little momentum builds up, social media serves to fan the flames and in no time at all there’s a veritable inferno of activity as more and more money pours in – all of it terrified of missing out on a fresh source of potentially life-changing profits….
- A seat at the casino table….
The fire can die down or move on to new fuel just as quickly….
Ten days on, Ripple has dropped back down to $1.82….
Chris Larsen’s personal net-worth has dropped with it. He’s worth 50% less than he was a week last Thursday. Easy come, easy go….
But what is it exactly that now makes Ripple worth only half as much as it was 10-days ago?
Nothing as far as I can tell. At least nothing concrete. All that changed is that the crypto- game – and the hot air and speculative money that drives it – has moved on to pastures new (or returned to pastures old).
Truth is that Ripple was last week’s casino game of choice. No more. No less.
Speculators weren’t concerned with what they were paying or with what the asset they were buying with their money amounted to. They were basically just renting a seat at the table and watching the wheel spin….
They bought purely in anticipation of selling at a higher-price when the ball came to rest….
- Certain to be punished….
Buying at any price – with no consideration of the underlying value of what it is you are buying – is traditionally a dumb thing to do….
But right now, we are not living in ordinary times. Right now, dumb is widely-regarded as the smart thing to be….
Plenty of dumb money – money buying without consideration of what is being bought or its true value – has been making hay in recent times. Plenty of dumb money has done very well in the crypto-markets….
And maybe I’m the dumb one. Because I haven’t been the one making it….
But the bottom-line is this: there are times when dumb looks smart and gets away with it. But that doesn’t stop dumb being extremely dangerous. And dumb luck has a habit of running out….
Back in the 17th Century the tulip mania saw investors pay astronomical sums for single tulip bulbs. Fortunes were made. But many more were eventually lost….
When the markets woke from the delirium and finally saw sense, tulip bulb prices swiftly tanked. Many of those left holding the now worthless bulbs lost everything….
Fortunes are being made in cryptocurrencies right now. Many investors/speculators are buying at any price – with no regard for what it is that they are buying.
It won’t always be that way. The delirium will pass. Prices will catch-up or fall back to reality. Dumb is sure to get punished at some point. Fingers will get severely burnt. That’s just the way the world works….
If you’re going into the crypto-markets, treat it like betting and only play with money you can afford to lose (if such money exists!). Anything else would be dumb.
That’s how it looks from here….
All the best,