This past April, Bitcoin reached a market cap of 2.3 trillion, which is the equivalent of 1/5th of the U.S economy and we watched it plummet to 1.5 trillion at the tail end of May. Those who have been crypto enthusiasts are use to the volatile crypto market and millionaires have been minted overnight, for them I say congratulations, but this is by no means normal or healthy for an economy. This article might be redundant for some but many people are in the fear of missing out stage and looking to buy this latest pullback so, I figured it be good to share some newbie thoughts.
Back in January of 2018, my friend bought $500,000 of Bitcoin at $14,000. We engaged in a debate and argued back and forth, with him explaining to me why it’s an excellent investment and I was playing devil’s advocate wanting to be a wet blanket on why Bitcoin is foolish and worthless.
I’m not going to lie; I traded crypto and did very well in 2017 and decided to watch from the sidelines in 2020/21. I traded in and out of the Grayscale Trusts after I was burned by Coinbase, which had my account frozen for 6 months forcing me to spam Coinbase into releasing my gains (they released it not at the price I put my initial sell in at). It’s funny seeing how Coinbase is now publically traded without having proper customer support. It was exciting to shoot group text messages with friends about how we will ride around on the moon in Lambos and sending GIFs of Saturn V rockets back and forth.
Let’s look back at some of the blockchain plays, miner scams, and shitcoins surrounding the first run in the crypto market:
MGT Capital Investments (MGTI), a crypto miner play penny stock, was pumped while having John Mcafee on its board of directors. It shot up to a high of $8.00 a share in 2018. Today it sits below 5cent after a monster amount of dilution. What happened to Mr. Mcafee eating his dick if Bitcoin didn’t hit one million?
Riot Blockchain (RIOT), another miner, had changed its company’s name three times in the past before jumping on the crypto blockchain electrolyte craze. AspenBio to Venaxis (2012), Venaxis to Bioptix (2016), Bioptix to Riot Blockchain (2017), and to add insult to injury to its investors, its mailing address was located in a strip mall.
Kodak(KODK), a name lost in the sands of time, launched KodakCoin. Upon Kodaks announcement in early January of 2018, Kodak’s stock price tripled in two days, as its market valuation increased to US$565 million, an increase of more than 300 %. Yet, by the end of the month, one-third of Kodak’s shares were trading short and Kodak was again forgotten.
LongFin corporation(LFIN), which came under the JOBS act from Singapore with its “executives” from India and less than 10 employees, went from $5 a share to $140 dollars on a short squeeze, gaining a market cap of over 6 billion dollars. The cryptocurrency they had called Ziddu completed only 1 transaction from what everyone can tell and nobody can tell exactly what this company did. The CEO made hilarious appearances on CNBC and in his first interview no longer available online showed his stock chart plummet as he spoke in circles about his business. The absolute lack of shame and morals for being a downright crook is enough for me to wonder what other wonderful characters came under the JOBS Act.
Youtube content creator turned grifter Kris Cantu created Redpill coin (RPIL) and scammed many of his followers and now is in hiding.
Long Blockchain Corp(LTEA), a firm out of Long Island whose main business was bottling iced tea, decided to join the blockchain orgy fest in December 2017. The company’s stock skyrocketed nearly 300% when it said it was changing its name and indicated that the business was looking into a “distributed ledger technology.” This prompted a full-blown FBI investigation and arrests.
Back to my friend; my main argument being that Bitcoin has no underlying value and no blockchain technology is not its underlying value. It holds no assets, no real estate, no patents, no know-how, no machinery, no supplies, no raw materials, no finished products, and no future income expectation. So, the fair market value of Bitcoin is the price it is trading at. Furthermore, Bitcoin value has no bottom. It could literally hit zero, which other investment assets rarely do. During the course of that year, Bitcoin dropped from a high of nearly $20,000 to a low of just over $3100.
My friend went on to tell me the wonders of this probably fictitious person named Satoshi Nakamoto and how revolutionary cryptocurrency is that it’s saving lives in Venezuela. People can take their digital wallets anywhere around the world and exchange it for USD. I quickly pulled my phone out and showed him my Western Union app, Venmo and Cashapp. So that conversation ended abruptly.
He then gave me a knee-jerk talking point that “the underlying value created for crypto is the cost to mine it.” My response was if Bitcoin were an asset that we could strip if the crypto market were to tank, you would be able to salvage at least the value of the electricity and computing power; this cost would have some bearing on rock bottom price. Spoiler alert! We cannot recoup this electricity. It is simply money lost. So, it does not represent value that can be obtained by holders of bitcoin. Those are sunk costs. If the price of Bitcoin reaches zero, you can’t trade it in for electricity.
My friend wouldn’t let up at this point said, “Clearly, demand and supply also plays a part, but the cost of the product cannot fall below the price it took to make it.” This is wrong. The price of any crypto, or any asset, can certainly drop below the cost of production. The cost of making something is the cost, not the value. The value is the price that the asset fetches on the market.
Another argument against Bitcoin having intrinsic value is that when Bitcoin was trading above $4,758 (the average cost of mining in 2018), none of the pro-Bitcoin pumpers were calling the asset over-valued. The pro-bitcoin shills were not calling for a market correction; neither did they advise investors to wait till the price dropped before buying more. Instead, they predicted that the price would increase further and that investors should hurry up and buy now to not be left out on the massive appreciation.
The supply of Bitcoin could be argued from two positions; one is that the supply of Bitcoin is fixed because there is a predetermined and finite number of coins which can be created, 21 million. If this is the case, then the supply of bitcoin cannot be responsible for the tremendous drops in price.
Another way to look at it is that the supply of Bitcoin can only increase because there are 2,279,862.5 coins yet to be mined (As of May 28th, 2021, 12:30 am EST). Therefore, an increase in supply would drive down the price.
What about cryptocurrency being a safe asset when the market crashes or during corrections? Go look at BTC stock chart when the scamdemic hit February and March of 2020. Did Bitcoin go to the moon? No, it crashed on its face from $10,375 to $4,000. It followed the overall market trend. At one point, I was using Bitcoin as a future market indicator for the DJI, S&P 500 and alt coins, but this is no longer the case. People pull cash out of all markets during a crisis; they do not put money into it. Gold and silver have never been traded during an economic collapse. Governments just issue new forms of tenure and if we were ever to go back to trading gold and silver, we would be dealing with much bigger problems that are unimaginable.
We can conclude that Bitcoin and altcoins have no underlying asset value and that the only value of them is the current market price.
We are faced with the paradox of cryptocurrencies; if it has no value, is not recognized as a legitimate form of currency, or isn’t a good way of exchange, then what exactly is the point of having it? That leaves us with the sad fact it’s nothing more than a stock that you have the ability convert to U.S Dollars. If it couldn’t be converted to USD, it would be worthless.
Cryptos will exist so long as the government issues money exists and is an unproductive “asset.” Bitcoin cannot be a rival to the system because Bitcoin is the system and those “whales” trading in and out of crypto is not retail geek day traders but the systems traders at their respective helms on Wall st. As I told my friend to put the argument to bed, “You aren’t breaking away from the system you are feeding it, so stop lying to yourself about cryptocurrency and admit you are just as greedy as those running the system.”