“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.
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.
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.