BACK in 2017, when asked about crypto currency, I gave an honest answer in this column. In short, buy and read the book ‘Extraordinary Popular Delusions and the Madness of Many People’. there. I can stop now.
In this book there are many examples of many rushing to find a solution and ‘investing’ ‘full tilt’ only to find out that the tulip bulb they have ‘invested’ in, that is, the tulip bulb. Whether it’s Tulipmania, the south sea bubble, the Mississippi scheme, magnetisers, witch mania, or haunted houses, the behavior was, and still is, the same.
A single tulip bulb, for example, cost almost $600,000 (in today’s terms) in 1637. In 1639, Rembrandt bought a magnificent house in Amsterdam for almost the price of one bulb.
A mart was established on the stock exchange and tulip-jobbers (brokers) made money buying low and selling high at the expense of the seller and the buyer of course – again today, it’s still the same. The more volatile, the better. Their houses were sold and the money was sold to tulips. Houses are sold at a broken price, because the profit from the tulip (based on the ‘belief’) will make it. Until not.
Cryptocurrencies, NFTs (Non-Fungible Tokens), and blockchains are all very different, but they are usually lumped together. They are not. Do not invest in them unless you are fully aware and prepared for losses.
Crypto has its uses, and it is a viable use of digital currency, but it has no real value. The fact that someone has to ‘mine’ to find an algorithm has no reference to future value, and just because something sells for $10 or $50,000 doesn’t mean it has no value.
If a crypto falls in ‘value’ from $50,000 to $10,000, it doesn’t mean it’s cheap, it means someone paid $50,000 before, and they were wrong. If I can teach you the value of 35 years of experience, if something can be cheap, it can be cheaper – much cheaper.
Just because it’s cheaper, doesn’t mean it’s useful – remember Del’s face in Only fools and Horses where Rodney comes back with lots of unusable objects that he bought at auction just because they were heavily discounted. Education is there for all of us, but only when the student is ready for the teacher to come.
There is a part of the brain called the prefrontal cortex that modulates emotions. When we are very aroused (fear or greed both), our logical brain goes down to slow motion or stop. We become too easy, and our thinking is binary – fight or flight.
It is this emotional binary thought process that many are trapped in when looking at crypto/tulip for Fear of Losing Out (FOLO). I have dealt with many tax positions in the last five years and there is no gain from crypto there, so take it with a pinch of salt pub chats on how much is made.
Remember, the real need in crypto startups is the power to take money from central banks and use your own currency. It’s a good thing, a good thing, and a good use, but it’s about ‘value’. What is the value if the central bank or government bans it for ‘reason’? The price will disappear overnight.
It is known that many centralized governments want a digital currency. Britcoin was proposed around 2025 by Rishi Sunak when he was Chancellor. I am not very comfortable with the power that a society can have without a centralized digital cash in the wrong hands, so I will oppose it.
In the previous column, and for those who have asked, I have always said that the build-up of cash in the arena of digital currency followed by an accident or corruption will drive the need to be called ‘regulation’. It will always come, so…enter FTX’s crash and the story will unfold.
Remember that blockchain is a great crypto story and all transactions are always visible and unalterable, so finding $1 billion in lost money should be easy, right?
No wonder when Googling ‘FTX crypto regulation’ there are over 27 million results. Soon, we will have a call for a centralized regulated crypto currency, regulated by those who want to leave the crypto world. This is a point I made in 2017 and it remains true today.
Peter McGahan is chief executive of independent financial adviser Financial Planning Worldwide, which is authorized and regulated by the Financial Conduct Authority. If you have any financial questions, please get in touch firstname.lastname@example.org or by calling our regional office on 028 6863 2692