Exuberance and idiocy….

Tuesday 26th September 2017

Exuberance and idiocy….

John McAfee is probably the most extreme example of a bitcoin bull that we’ve seen to date….

It was less than 3-months ago that the anti-virus software mogul promised to eat his own genitalia on national television if the cryptocurrency failed to hit $500,000 inside of 3-years….

That’s quite a stake the man’s slapped down. McAfee must be outrageously confident or reckless to the point of insanity….

Or, just maybe, he has chips on the table and is prepared to do whatever it takes to ramp up the bitcoin price….

  • The prize for playing fast and loose….

At the time, bitcoin needed to rise some 22,636% to hit McAfee’s ambitious target and to spare his manhood the indignity of prime-time amputation and consumption….

12-weeks after McAfee made his solemn promise on Twitter (one we intend to hold him to, by the way), bitcoin is up around 40%….

It had been higher still, but the recent correction took steam out of the system….

Prices have partially recovered, but first thing Monday morning bitcoin was at $3759.45 – still 25% below the all-time high-water mark achieved on September 1st….

There’s a long way to go to $500.000. But McAfee still has time on his side, of course.

He won’t be sweating like the proverbial glassblower’s backside just yet. There won’t be a getaway car permanently stationed on stand-by, engine running, ready to spirit him away to some airfield and a life of exile in Belize. Those days still lie ahead.

We have wondered if McAfee might wish he’d played a little less fast and loose with the fate of his oysters.

But, on balance, we think probably not. McAfee played for a media splash and maximum exposure – and he did what was necessary to get the media to deliver….

  • Let’s get serious….

McAfee isn’t alone in his bullishness….

Tom Lee from Fundstrat, for instance, is on record saying bitcoin could be worth $55,000 by 2022. And that is a nice prediction. Polite. Measured. Quiet. Something you could repeat at the family dinner table….

But, let’s face facts. It lacks pizzazz. There’s no show-biz. There’s nothing here to get the old pulse racing. This thing has a side-parting and wears a dickie-bow….

This is something you might tuck away on some ill-lit corner of page 19 on a slow news day. But there’s not much in the way of raw meat for the front-page headline writer to get his fangs into….

Where, for example, is the utterly preposterous number plucked straight from the ether and presented as a genuine, informed and well-considered calculation?

Where is the unsupported confidence that borders on the maniacal or the unhinged? Where are the bulging eyes? Where is the throbbing vein? Where is the crazy talk?

Where is the flamboyant, slightly stomach-turning and ultimately meaningless gesture? Where is the derring-do?

How can we even think about taking Tom Lee seriously when we don’t have any clue which body part the man is prepared to throw down onto the table to support his viewpoint?

  • Baiting the hooks with sensation….

McAfee’s primary intention was always to generate a blizzard of colorful news reports detailing his lurid pledge and to do his bit to keep bitcoin – and its rising value – at the forefront of public perceptions….

Whether the man believes bitcoin will get to $500,000 or anything close to it is an irrelevance….

And I certainly don’t believe he’ll want to make good on his pledge if bitcoin doesn’t hit that level during the prescribed time-frame….

This was short-term news management. Nothing more. Nothing less….

This was a man with skin in the game seeking to serve his own ends and the news media were more than happy to play along, devoting generous portions of both newsprint and airtime, because canny McAfee had baited his hooks with exactly the right commodity – bald and unmitigated sensation….

But even the biggest splashes are short-lived in a media that runs 24-hours per day for 365 days per year and is relentlessly in search of the next installment….

If McAfee’s threats of self-mutilation served to keep the bitcoin ball rolling along the road for a while, the momentum had given out last week….

The bulls that had been running rampant throughout mid-summer had been usurped by the bears….

  • The view from the bears….

Bridgewater Associates is the world’s largest hedge fund, it manages $160 billion of investor money and has produced net gains of almost $50 billion (after fees) since 1975….

The fund was founded by Ray Dalio and last week he waded into the ongoing bitcoin debate.

We don’t imagine anything we have written on bitcoin being a bubble has influenced Mr. Dalio’s thinking. But we note that he takes a similar line….

He said that he believes the increase in bitcoin’s value over the summer has been ‘very much’ driven by speculators buying at any price in the belief they can sell on at even higher prices.

‘It’s very much speculative. People are thinking, ‘Can I sell it at a higher price,’ so it’s a bubble,’ Dalio concluded in an interview on CNBC.

Ron Insana is a senior analyst and commentator at CNBC. He’s studied and written about investment bubbles throughout his 33-year career. Last week, he had this to say….

‘Bitcoin is in a bubble, make no mistake. The episode, for some, will end badly while others reap the rewards of getting in on the action early and, more importantly, getting out before the bust.’

Financial Times editor, Robin Wigglesworth, adopted a slightly different stance.

He’s a bitcoin sceptic who believes bitcoin’s is a poor currency because its volatility renders it a terrible means of exchange and a poor store of value….

Wigglesworth says: ‘Its primary attraction has been its rocketing price,’….

Whilst remaining staunchly skeptical, he also believes that bitcoin has the potential to hit a six-figure valuation – thanks entirely to ‘human idiocy’.

  • The most resilient of attributes….

Human idiocy – that most resilient of attributes….

5000+ years of civilization have not managed to put so much as a dent into it. And we doubt 5000 more years of the same will either.

Human idiocy endures where many other things have long since given up or failed. It is the one rock that can defeat even the mightiest ocean. Nothing can hope to erode or diminish it.

But stubborn and as deeply ingrained as it is, human idiocy (the sort that goes to work in financial markets) often has its roots in a noble soil.

It isn’t idiocy for idiocy’s sake. It isn’t the kind of idiocy that encourages a drunk to play chicken on a motorway or to swim across the Hoover dam when in Colorado on a stag-do.

Instead it is a form of idiocy that grows out of unbridled exuberance for some new development in technology or finance.

The exuberance mutates into a form of collective idiocy only when investors and traders start to believe and act on the assumption that the intrinsic value of what is new will not only continue to expand – but will do so in perpetuity.

  • The story behind the story….

Bitcoin is a new development in the financial world. There is much exuberance about it. And that exuberance has played and will continue to play a big part in expanding values.

Has exuberance already mutated into idiocy? Will that happen further down the line? Might it not happen at all?

We don’t know. Like you, we watch the story of bitcoin develop with much interest – following all the twists and turns, all the up ands and downs and respectfully taking note of everybody’s opinion and acknowledging that most people seem to know much more than we do and can ever hope to….

But we are interested in another story too. A story that runs in the background of the bitcoin story – but a story equally, if not more, significant….

I’m talking about the story of the blockchain – the technology behind bitcoin, the technology that enables bitcoin to work by producing a transparent paper trail that can be accessed by all but altered by no-one….

Bitcoin is just one – the first widespread – application of blockchain technology. It is a financial application. But blockchain is not limited to just financial applications.

The uses blockchain technology will be put to in the future are going to change the face of business. According to Harvard Business Review, Blockchain will be the next great disruptor – changing business and how it is conducted over the next decade more than even big data or artificial intelligence.

I don’t know where bitcoin is going. I don’t know if it will be around in 10-years-time. I don’t know how much a bitcoin will be worth – or whether John McAfee will hang on to his bits and pieces….

What I do know, is that whilst everybody is looking at bitcoin, blockchain hums away in the background poised to produce a feast of profit opportunities for business and for private investors….

More to come.

That’s how it looks from here….

All the best,

Dave Gibson

Money Truths