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Posted on 10 Jan 2018 by Alex Shevelev

Chiming in on Crypto Madness

Chiming in on Crypto Madness


“Bitcoin has become one of the world’s hottest investments, a bubble inflated by social media, [and] loose capital in search of the newest new thing”

You could be forgiven for thinking that this was written last week. In fact, it appeared in The Economist in April 2013. Bitcoin started that year at US$15 and by April had reached a dizzying US$179. Now, it fetches about US$15,000. The rise of Bitcoin has created more than a few billionaires, given the Winklevoss twins (‘If you guys were the inventors of Facebook, you would have invented Facebook’) another 15 minutes of fame and provided plenty of fodder for comedians (see below).

The crypto-mania hasn’t stopped there.

Bitcoin copycats are everywhere: new cryptocurrencies with names like Ark, NXT and Stratis. Dogecoin, the Doge meme based cryptocurrency recently cracked a US$2bn market capitalisation. Back when it was US$1bn (two weeks ago) the founder proclaimed, “It says a lot about the state of the cryptocurrency space in general that a currency with a dog on it which hasn’t released a software update in over 2 years has a $1B+ market cap”.

Yet, there are plenty of eager speculators willing to exchange their hard-earned, seemingly obsolete dollars for the chance to own some newly minted electronic coins. Initial coin offerings (ICOs) raised a staggering US$3.7bn in 2017. Some early backers of these ICOs have been rewarded with returns that read more like telephone numbers. The next three days will see 17 ICOs raising money from the public all around the world. Mostly, this will end up being a donation to the promoters.

An honest ICO

Some ICOs have been quite honest about their goals. The Useless Ethereum Token (UET), the world’s first 100% honest ICO, puts it frankly:

“You’re going to give some random person on the internet money, and they’re going to take it and go buy stuff with it. Probably electronics, to be honest. Maybe even a big-screen television. Seriously, don’t buy these tokens.”

Well that didn’t stop the punters. The promoter raised US$350k. Miraculously, UETs are up 250% in the last month and still boast a US$130k market capitalisation.

#nocoiner, #nohodler

Yes, those newly minted millionaires will accuse me of being a staid old value investor who knows nothing about this new and exciting technology that is going to change the world. But they’d be wrong.

One leisurely Saturday morning in late December a Bloomberg article trumpeted that Ripple had become the second largest cryptocurrency by market capitalisation, rising 20,000% in 2017. Something clicked in the recesses of my memory: don’t I own some of those?

After some digging, it turns out that back in 2013 I was given 1,000 Ripples for registering my email address. I ain’t no #nocoiner. I’m a #HODLER* through and through**. A genuine, bonafide cryptocurrency thousandaire.

So you can take it from an expert. This is madness. Madness of an order of magnitude greater than anything the world has ever seen.

*#HODL arose from a mistyped scream for people to hold on during a previous bitcoin meltdown. It’s become a call to arms for holders every time it looks like collapsing.
**Truth be told, I sold them within 5 mins of working out that I owned them. Still, I did manage to accidentally HODL for almost five years.



Chiming in on Crypto Madness

11 thoughts on “Chiming in on Crypto Madness

    • Hi Sam
      I had the grand total of 1,000 Ripples – good for about $3k in real Australian dollars. So, a little bit closer to retirement. The Social Network, a 2010 film about Facebook, had this quote about the Winklevoss twins.

      • I am seriously impressed. You are the only person I’ve heard of actually selling a cryptocurrency. In fact most people I have asked are not even aware of how to because Coinbase only lets you buy…Ponzi anyone!?

  1. Initially I thought this was just a vanilla speculative bubble. However after doing far more reading than I wanted to I now believe this is a massive ponzi scheme run by the big exchanges (having learnt from Mt Gox). To keep it short basically one of the big exchanges (Bifinex) is issuing Tether a crypto-coin that is supposedly backed 1 for 1 by USD and is used instead of real US dollars on almost all of the big exchanges. There are now over $1.5 billion of these Tether issued with approximately $100 million issued every week or 2. Now if you believe some unregulated entity that has had banking issues in the past has $1.5 billion sitting in a bank account go ahead and invest your life savings in crypto-currencies. Alternatively consider how the ability to print psuedo-USD whenever needed might be behind much of the rise in price/market cap over the last year or so. There are many more details which I haven’t gone into here however just google if you really want to know more.

  2. so my silly questions are.. when/if crypto stuff this bursts what will it mean for the broader markets, how deep will the bursting affect the banks and what should simple folk like myself be doing to position for it ???

    • Hi Jane, at current prices the total market cap of the crypto universe is about $520bn. It’s a big number, but is spread all over the world and with limited involvement from financial institutions. So it is unlikely to trigger much in the way of broader market sell offs. Unfortunately those exposed directly to crypto, especially those who have put in more than they are ready to lose, will get hurt.

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