That’s the title of a very interesting article by Aaron Clarey, a.k.a. Captain Capitalism. If you’ve been wondering about Bitcoin (the original “cryptocurrency“), “Initial Coin Offerings” and the like, he provides a great deal of information of which I hadn’t been aware. In particular, he highlights the risks involved in dealing in such pseudo-commodities.
… unlike say, a bond, a stock, or a rental property, currencies (crypto or not) do not produce income. They are a tool of economic exchange, a store of value, and naturally forming and evolving economic phenomenon since humans existed. Silver bars do not poop out little silver coins and gold coins do breed to make little gold coins. And since all currencies produce nothing, there is no means by which to value them. The value of currencies are therefore determined by their rarity relative to one another, whether they have intrinsic value (precious metals), utilitarian/commodity value (silver is used in electronics), purchasing power (the Big Mac Index) and the amorphous, whimsical, and impossible-to-measure trust and faith of the entire world’s people.
. . .
I’m no economist, but as far as my logic takes me, the world should only need ONE cryptocurrency. Maybe three or four in order to account for the fact people would want to diversify out of being reliant upon just ONE cryptocurrency. But when I did the research for my client…now approaching 4 months ago…there were….(drum roll please)
But wait, it gets better! In those four short months the number of cryptocurrencies has increased by 200!
Do not tell me this isn’t Dotcom II all over again.
. . .
Very simply “The We Accept Index” reconnects and measures the only thing that matters with a currency – whether it is accepted as such. Whether you can use that currency to purchase ACTUAL TANGIBLE PHYSICAL THINGS IN THE REAL WORLD. Whether other people deem it to have value. And it is here we find out just how few cryptocurrencies have value.
In all honesty, only two, MAYBE four have value:
Dogecoin (and this was started on a lark!)
The remaining 99.7% of cryptocurrencies, in literal economic terms, have no value.
There’s much more at the link.
This is a very informative and useful guide to the area of cryptocurrencies, and the explosively expanding market for them. I’m forced to agree with Mr. Clarey; this looks like yet another bubble, one that may take the fortunes of many investors with it when it (inevitably) implodes. There is no real, tangible value underlying it at all.