It’s hard to get one’s head around how currencies like bitcoin are changing things.
Two things exploded in 2017 – cryptocurrencies and Initial Coin Offerings (ICOs) and will probably get more attention in the weeks and months ahead.
Take the choice of cryptocurrencies themselves. New ones are being added all the time – so what should we be buying or selling?
Warren Buffett says that he wouldn’t get involved.
But, what he would do is buy a five-year put on every one of the currencies out there.
What that means is that if he could buy an option to sell a currency at a fixed price within the next five years, then he would buy that for every currency.
That means that he believes that in five years the price of all currencies would be lower than they are today.
So – should we take the advice of the legendary investor?
Well – the counterpoint is Arthur C. Clarke’s comment that if an elderly but distinguished scientist says that something is possible, he is almost certainly right; but if he says that it is impossible, he is very probably wrong.
Is the world a different place now? More like it was in 1971?
That was when the gold standard ended, and dollars were no longer pegged to gold.
All of a sudden, currencies could be whatever value they wanted and the total amount wasn’t linked to the amount of gold a country held.
With a fixed supply of cryptocurrency – the idea of a standard comes back into play.
What do those that are bullish on the space say then?
The idea behind cryptocurrencies is that they are fair – they take away the control of the large financial institutions and redistribute power to the community and network in a democratic way.
In a sense, bitcoin’s founder had the idea of one-cpu one-vote.
Where are we now?
Some Initial Coin Offerings (ICO’s) have staggering valuations – they raise millions in minutes.
In 2017, Gnosis raised $12 million in 15 minutes, OMG raised $25 million, and Qtum raised $15.6 million.
The latter two sold tokens at at around $0.30 which have gone up by around 40 times in under a year.
That’s an interesting return.
So greed kicks in – a new technology that looks like it’s going to take over the world, fast returns and the ability to lock in incredibly high returns.
On the sidelines we have fear – this doesn’t make sense and the valuations are not tied to any real world value and revenue.
Are investors – and there are a few who seem to take up most of the offering value – focused on making money from volatility rather than from the underlying business?
And is the basic business case the greater fool theory – where we can find someone more dumb to buy the stuff we hold?
Just the idea of a company being involved in this space is like giving it steroids. Kodak – a 130 year old company – tripled its shares after announcing it was going to start a currency.
Back to the title – the flippening is what happens as sentiment flips from one asset class to another.
It’s used mostly to monitor the possible flip from bitcoin to ethereum as the latter becomes more valuable.
Will 2018 be the year when there is a flippening from the dollar and stock markets to cryptocurrencies and ICOs?