On a nearly daily basis we hear about the newest Bitcoin millionaire or how another company has forgone a traditional debt or equity offering to instead raise money through an “ICO,” or initial coin offering.
As the retail public begins to become aware of the previously esoteric cryptocurrency market, I can’t help but think of how this compares to past asset rushes in American history as well as what it reflects on us at the moment.
The cryptocurrrency market is now in the hundreds of billions of dollars, with new coins being created on a near monthly basis. Almost each of these currencies is facing volatility that is simply unheard of for almost any asset.
Furthermore, with each increasingly harsh press release and statement warning about cryptocurrencies, it looks like soon enough the Securities and Exchange Commission itself may be finally edging close to reigning in the market, though to what degree remains unknown.
Cryptocurrency is the ultimate sleek asset for our modern technology boom. It is almost perfectly designed for our times – it combines some of the most modern developments in Internet services, software, and data science. It undoubtedly will have some potential use in the future, even if not the “currency ending” millennialism talk some of its evangelists tout.
However the way the public has begun pouring into it almost seems like a modern version of the gold rushes to the American West in the 1800’s. During that time, hundreds of thousands of Americans packed up their belongings and left their homes in search of fabled riches in the mines and rivers of California and other territories.
Many rushed in with little understanding of how to find gold, how much there might be, and the dangers involved in the blasting and mines. Many ended up with little to show for their efforts, while it was in fact those merchants who set up shop for services, housing, and supplies for the miners who in fact extracted the greatest profits.
The cryptocurrency craze today is indeed our modern gold rush. Too many are now rushing into cryptocurrencies without the slightest idea of the actual mechanics of the system.
We even hear stories of people mortgaging their houses to buy cryptocurrency, essentially risking everything in search of easy riches just like those who followed the gold rush to the frontier back centuries ago.
Just like with the gold rush of the 1800’s, some of those who are in fact profiting the most from the cryptocurrency are the middlemen. Those who are issuing the ICOs are raising untold sums of money with little liability. Cryptocurrency exchanges carve out extensive fees that make broker transaction costs for securities look nominal. Many evangelists tread the edge of legality, with some even outright engaging in pumping and dumping, taking advantage of this wild west environment.
Like with the gold rush, eventually this craze will end. Cryptocurrency won’t “run out” per say, as one aspect of cryptocurrency is that there are essentially an infinite number of potential cryptocurrencies. However undoubtedly regulators will someday soon tighten the market, dramatically crunch the volatility, and dissipate much of the investment demand currently fueling the price swings and consequent market interest in a vicious cycle.
How soon cryptocurrency becomes “boring” is uncertain. In the meantime, by looking at this current show in this online casino we learn a lot about the strange ways history repeats itself and about how human nature’s desire for easy riches and quick profits remains despite the past’s endless warnings.
Cryptocurrency is exciting. It’s flashy. It excites us with dreams of easy wealth, just like the thrill when we buy a Mega Millions or Powerball ticket. However at least the profits from the lottery system go to a beneficial cause, such as education.
Cryptocurrency has had and will continue to have its winners, but in many cases the real flow of money is going to those making a business off of the craze and hype. Caution, as always, is a prudent quality.
Re-prints of some of my columns. NOTE: I ran a national weekly column from 2017 to 2018 printed/distributed by newspapers in dozens of states across the country. The 2017-2018 blogs in this section are re-prints of the national column.