I just ran into this on the Internet and here’s a little weekend project in case you have lots of free time. It’s back in stock but they fly out of shelve very fast, explaining the $1,000+ going rate from resellers. It’s probably one of these collectibles, that if left unopened for a very long time, becomes their own retirement account over time.
*None of what you are about to read is investment advice of any kind. You shouldn’t buy any cryptocurrency without deep personal research and consideration. Again, this is not investment recommendations.
Euphoria: is an affective state in which a person experiences pleasure or excitement and intense feelings of well-being and happiness.
Economic Bubble: When the prices of securities or other assets rise so sharply and at such a sustained rate that they exceed valuations justified by fundamentals, making a sudden collapse likely (at which point the bubble “bursts”).
My last Bitcoin/blockchain post (Bitcoin Mania) has received a lot of attention. I talked about the forces that are fueling Bitcoins to record level. For many Bitcoin seems the easy path to riches. This is a pure sign of a bubble. However a bubble doesn’t pop just because you spotted one. You need a catalyst that will trigger the crash. Before we get to that I want to mention a few examples of pure irrational behavior related to Bitcoins, just to get a sense of how absurd the market can be. You can replace the word Bitcoin with dotcom bubble, 2007 real estate bubble, or the 1634 Tulip bubble if you are old enough. The overvalued asset might be different but the composition of the bubble is the same.
At the moment, there’s only one way you can make money with Bitcoins; you need somebody to buy it at a higher price than you (Greater Fool Theory). I buy an overvalued asset with the anticipation of selling it to other speculators (the greater fools) at a much higher price. Basically you need somebody more stupid than you.
Pole dancing instructor Dee Heath is riding the surge with her fitness business in western Sydney. She has spent $5,800 on Bitcoin since July and has more than tripled her investment.
“Look, I love pole dancing but lately my passion has definitely been Bitcoin,” she told SBS News.
She is now dedicating her time informing would-be Bitcoin investors about navigating the world of cryptocurrencies […]
“The good thing is when it goes down, you can buy some more, and you know it’s going to go up at some point.”
The message is Bitcoins = Path to Riches. If an Australian pole dancer is making it rain, you can too! Nobody wants to be the poor pole dancer. Expect more pole dancers to get to fuel this bubble before less. In behavior finance this phenomenon is called herding. We mimic the behavior of our surrounding to feel better and to fit in. It makes us feel more secure because everybody else is doing it. In the movie The Big Short, Steve Carrels figures out there’s a bubble in the housing market after interviewing a stripper in Florida. It turns out all her strippers friends are on it too (Youtube NSFW):
In finance portfolio managers have very similar investments because they are compensated on their performance relative to peers. You don’t want to explain to your investors every three months why hot trendy stock ABC is not in your portfolio like everybody else.
While I’m on the topic of strippers, there’s now the world’s first Bitcoin strip club, The Legends Room in Las Vegas. According to the website The Legends Room is a world class Las Vegas gentlemen’s cabaret re-imagined using blockchain technology. The “club” has its own virtual currency and feature Bitcoin ATMs within the club. Instead of pulling out cash, you’re literally buying digital coins. You put money into the “ATM,” hold up your phone, and the machine sends bitcoins directly to your mobile device. Now there’s an army of adult entertainers getting a degree in cryptocurrency.
Here’s another example that brings back memories of the dotcom bubble when any old company could slap .com on the end of their name and see their stock levitate.
Failed biotech Bioptix Inc recently changed its name to Riot Blockchain Inc. (RIOT). Below is the stock chart since the change:
RIOT is not alone. Other companies have shown that a foray into the cryptocurrency space is often rewarded by investors, at least initially, as the astronomical increase in the value of virtual coins has lured everyone from big banks to startups. This trend will also get worse before it gets better.
There are strange stories too such as this one: Rare Pepe Blockchain Cards Have Produced More Value Than Most ICOs. I’m still trying to wrap by head around this. Rare Pepe is based on an internet meme called Pepe The Frog that has been around since 2005 and became popular during the 2016 election. Over the course of 2017, there have been a lot of blockchain projects, and the Initial Coin Offering (ICO) craze has been off the charts. Most ICOs are pump and dump scheme, but this Rare Pepe one is successful for now. Rarepepes are digital trading cards.
These are some of the few examples I came across since researching the crypto space.
Like I previously explained, my guess is that Bitcoins is most likely to go up before it pops. There will be more people like the Australian pole dancer getting involve before they are less. Easy money is addictive and contagious. This will get bigger before it gets smaller. Everybody is talking about Bitcoins but only a minority has managed to dip their toe in the action. It will eventually get main stream. The fear of missing out will drive people to get involved. Eventually the government will have to step in and that’s when the party is over. It will be particularly damaging when it burst because there were no assets underpinning its price.
Your assumption that a chunk of your hard earned money that goes to the government is wasted does not go unfunded. For the celebration of the 150th anniversary of Canada, the Ontarian government is spending $120,000 on a giant inflatable rubber ducky. This is one of many cases where you wonder who makes these decisions? How does this happen? We will never know in this case but having worked for a large organization in the past I have insights on how stupid decisions happen. It’s easy to blame the Premier/leader for such stupid waste but with so many levels of management and bureaucrats, I think good ideas are lost in the process and are affected by the result of group think. Here’s my take on the rubber ducky fiasco.
First, a comity probably set a budget for the festivities. With the help of a HR firm, they hired a bunch of people (like Bill and Randy) with MBAs to come up with ideas how to spend the money. Lacking ideas, Bill and Randy hires an external consulting firm to come up with something exiting. The very expensive per hour +fees consulting firm gladly accepts the task. The consulting firm runs a bunch of focus groups, do some “market research”, and other gimmicks to fill up their pricey report. Bill and Randy then send the report to the comity for approval. The comity, looking for ways to justify is existence, hires another consulting firm to have a 2nd opinion. The consulting firm suggests some changes to justify their fees. The comity submits the amended report to some board to get it approve. The board then sends the report to some regulatory agency with their own army of bureaucrats to make sure that none of the ideas were too over the top because you wouldn’t want a scandal on the 150th anniversary of Canada. This takes a lot of time and the report is sent back requesting some changes. By that time, the original people that were hired, Bill and Randy, got transferred to a different department and were replaced by new hire Linda and Hank (both MBAs). Hank and Linda goes back to the drawing board to come with new refreshing ways to celebrate Canada’s 150th. During the process, Hank is off on paternity leave for a year and Linda is unfortunately on medical leave. Again with the help of an external HR firm, the comity manages to temporarily replace Hank and Linda with Tim and Gus (MBAs) at the last minute. With time running out and knowing that he has no job prospect following this project, Gus decides to smoke weed with his buddy Bobby (Bob) that has a rubber ducky company. Bob makes a joke about a giant rubber ducky and that’s when Gus decides to use it as his idea to celebrate Canada. Gus suggests the giant rubber duck idea to the comity and plugs in his buddy’s rubber ducky company. The board submits the idea for approval to a few agencies like nature, ethics, marketing, First Nation, Second Nation etc… And finally Bob gets the contract because he’s the only one that submitted a bid since nobody else has a giant rubber ducky in their inventory. Gus is then poached by Bob’s rubber ducky company and becomes an official lobbyist. Happy 150th Canada Day!
I think that what happened. I think that’s how a lot of serious decisions are made. I have seen some of the stuff above happened when I worked in the private sector. I don’t mind giant rubber ducks. I just wish it was private money that funds it. Anyway if the rubber ducky ever comes near my home I will bring my daughter to see it so I can tangibly show her why her school is broke.
As for what’s to come next, since the giant rubber ducky has no particular meaning, it could be used for a bunch of other government celebrations. With about 200 countries around the world and a scarcity of giant rubber ducks, this could lead to situations of over bidding which would result into a gold mine for Bob since governments are not in the business of saving money any time soon.