I’m ready to sell everything today.
I feel that way because the market seems to have learned nothing from last fall’s tech wreck. Stock buyers are speculating rather than investing.
Remember Bitcoin? It was the pot stock of 2017, rising to $20,000 by the end of the year from next to nothing. Then, in a puff of 2018 smoke, it all came crashing down.
Well, Bitcoin’s back. Sort of. The chart going back one year still looks ugly, but in 2019 it’s on fire, up nearly 40%, trading early in the afternoon of Apr 9 at $5,237.
Bitcoin, and other cryptocurrencies, have always been speculative instruments, not investments. Remember, they’re just encryption keys, answers to a puzzle.
While cryptocurrency is often pushed by westerners, like venture capitalist (and multi-California dreamer) Tim Draper, most of the action is in Asia, where autocrats are the rule and the idea of invisible money you can cross borders with is appealing.
Cryptocurrencies are built on blockchains, encrypted ledgers that act as a shared database. They’re held by exchanges like Coinbase, with the “wallets” people claim to hold them in acting as clients in a client-server network.
The main attraction of Bitcoin is said to be the lack of government control over it, although there are now regulators of Bitcoin in many countries. Still, there’s no governance of the currency as such, just a bunch of private owners sitting around a virtual table, many of whom are ready to manipulate the system in order to steal Bitcoin.
But you still can’t do much with it, other than trade it for other cryptocurrencies.
The hottest “blockchain” startups of 2019, like JPM Coin , from JPMorgan Chase (NYSE:JPM), aren’t cryptocurrencies, but stand-ins for real currencies, existing only in tightly-controlled blockchains run by banks.
The best use of Bitcoin is as an alternative currency when the local stuff collapses, as in Venezuela or, before that, Zimbabwe. That’s because, compared with the non-currencies issued by those states’ banks, cryptocurrency is relatively stable, thanks to its global nature, and invisible, since it’s based on servers that are outside the country.
The problem is that a cryptocoin can mainly just buy other cryptocurrencies. That’s why economist Nouriel Roubini calls all such coins “shitcoins.” He says their control is centralized in very few hands and argues the blockchain technology is nothing more than a glorified database.
Whether blockchain is useful in dropping the cost of transaction processing will be proven over the next few years by companies like China’s QLC, which is using blockchain in a bid to make moving money via SMS messaging both secure and cheap.
But that has nothing to do with cryptocurrencies, although they still have value as a proxy for speculative fever in global markets. When people think they can get money for nothing, Bitcoin and other cryptocurrencies will rise in value. When the harsh reality hits, they will fall in value.
Stock investors should consider buying shares when Bitcoin bulls are depressed and consider selling shares when they’re most excited. Right now, sadly, they’re feverish, which makes the whole market look frothy.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in JPM.