Stocks have value because you own part of something tangible, profitable (hopefully) and saleable.
By contrast, crypto currencies, like bitcoin, offer only faith and hope.
Suddenly, crypto currencies also seem to have momentum — like Nvidia.
I bought some bitcoin because of the momentum. I could smell crypto’s appeal going mainstream investing. I bought them through Fidelity, my favorite online broker. I figured with Fidelity I wasn’t going to lose all my money. Think the shenanigans of Sam Bankman-Fried and others.
The Economist seems to agree with my crypto “logic.” This week, it published a wonderful article:
Why bitcoin is up by almost 150% this year
Introducing the cockroach theory of crypto
Chopping off their heads does not work: cockroaches can live without one for as long as a week. Whacking them is no guarantee either: their flexible exoskeletons can bend to accommodate as much as 900 times their body weight. Nor is flushing them down the toilet a solution: some breeds can hold their breath for more than half an hour. To most, roaches are an unwelcome pest. Their presence is made all the worse because they are indestructible.
An unwelcome pest is how many financiers and regulators would describe the crypto industry. Criminals use cryptocurrencies to launder money. Terrorists use them to make payments. Hackers demand ransoms in bitcoin. Many crypto coins are created simply so their makers can make off with the money.
The industry also appears to be indestructible. Crypto prices were crushed by higher interest rates in 2022. The industry’s head has been chopped off: Changpeng Zhao and Sam Bankman-Fried, the founders of the world’s biggest and second-biggest crypto exchanges, now both await sentencing for financial crimes (breaking anti-money-laundering laws and fraud, respectively). Regulators are cracking down. Yet not only has crypto survived, it is once again soaring: bitcoin climbed to a two-year high of almost $45,000 on December 11th, up from just $16,600 at the start of the year.
What is going on? For one thing, indestructibility is built into the technology. Bitcoin, ether and other coins are not companies—they cannot go bankrupt and be shut down. They employ blockchains, which maintain a database of transactions. Their lists are verified by a decentralised network of computers that are incentivised to keep maintaining them by the promise of new tokens. Only if the tokens fall to zero does the whole architecture collapse. And there continue to be lots of reasons to believe some crypto tokens are worth more than nothing.
The first is that holding crypto is a bet on a future in which use of the technology is widespread. People in despotic countries already use bitcoin and stablecoins (tokens pegged to a hard currency, like the dollar) to store savings and sometimes to make payments. These could be used more widely. Artists and museums are still creating or collecting non-fungible tokens (nfts). As are those looking to flog an image. Donald Trump is selling his mugshot for $99 a piece. He plans to have the suit he was booked in cut into pieces, made into cards and given to punters who buy at least 47 nfts in a single transaction.
During the boom times, the crypto industry raised a lot of money and hired plenty of smart developers. Those that remain are working on new uses, like social-media applications or play-to-earn games. Perhaps these will never be widely adopted. But even the small chance that they work out is worth something.
The second reason is that, with each boom-and-bust cycle, it becomes clearer crypto is not a bubble like tulip mania in the 1630s or the craze for Beanie Babies in the 1990s. Although bitcoin is a volatile asset, its price history looks more like a mountain range than a single peak, and appears closely correlated with tech stocks. Yet it is only moderately correlated with the broader market. An asset that swings up and down, and not in parallel with other things people might have in a portfolio, can be a useful diversifier.
That bitcoin has established itself as a serious asset seems to be the source of the latest surge. In August an American court ruled that the Securities and Exchange Commission, America’s main markets regulator, had been “arbitrary and capricious” when rejecting an effort by Grayscale, an investment firm, to convert a $17bn trust invested entirely in bitcoin into an exchange-traded fund (etf). Doing so would make investing in bitcoin easier for the average punter.
In October the court upheld its ruling—in effect ordering the sec to give way. The biggest fund managers, including BlackRock and Fidelity, have also applied to launch etfs. Given the returns bitcoin has offered in the past, and its correlations with other assets, the result could be a rush of cash into bitcoin, as even sensible investors consider putting small slices of their pension pots or portfolios into crypto for diversification.
Many feel instinctive revulsion when they spy a roach. But in spite of their flaws, the bugs have uses—they turn decaying matter into nutrients and eat other pests, such as mosquitoes. Crypto has its uses, too, such as portfolio diversification and keeping money safe under despotic regimes. And, as has been shown, it is just about impossible to kill.
The Economist’s bitcoin story is here.
A tiny bit on AI
I’m still wrestling with the new AI. I’m amazed how many of my friends are already finding ways to use it — to save themselves money and be more productive. You got to be mighty careful. Using AI without barriers — i.e. not checking the results — is not the way to go. Raw AI — e.g. ChatGPT — makes mistakes. Serious ones. But using it as a controlled tool to help you do your business better can be very productive. As can other variations. Check out what Google has done with its search engine in Chrome.
Everybody — and I mean everybody — should be checking their business problems and concerns. How can the new AI potentially help me?
You’ll be surprised how it can help you in small ways that may have a major impact on the profitability of your business — in very short order.
More on AI in coming days.
More travel tips
+ European hotels include breakfast with their rooms a buffet breakfast. That’s great. But don’t pig out. Your tummy will hate you. I spent yesterday nursing my tummy.
+ I don’t know how to overcome jetlag. My stateside philosophy doesn’t work, namely — I eat when I’m hungry and sleep when I’m tired.
+ Uber can be 100% reliable and 100% unreliable. On average it’s more reliable. But there are times — like this afternoon — when I called an Uber. It counted down to one minute to arrival. And then, nothing. I called he driver. No answer. I cancelled and hoped I could somehow get Uber to get me another ride. So such luck. Uber’s software has become so complicated –overly so — that simple things like getting another ride. is way beyond my pay grade (aka intelligence).
Eventually a kindly passing lady –aka good Samaritan — called me ride on Bolt (an Uber competitor) and I eventually got back to my hotel in time for a fancy dinner.
There’s a lesson here: Have at least three Uber competitors apps on your phone. When Uber lets you down, you can call someone else. You can find out the names of Uber’s competitors by asking Google.
+ I carry two Duxiana travel pillows. They are the best travel pillows in the entire world. I know. I have a collection of awful, cheaper pillows.
+ Getting Euros out an ATM in Lisbon costs you 15% in exchange rate. The real rate is 9.5%. Fortunately everyone takes credit cards, which carries the 9.5% exchange rate.
+ As a result of severe delays and a surge of tourists, the Portuguese Authorities have extended their RAPID4ALL System to U.S. passport holders. This program is expected to significantly reduce the time it takes for citizens to get through immigration. To use the RAPID4ALL, you must have a United States E-passport. See yesterday’s blog — here.
- Be 18 years old or older.
- Enter the European Union through Portugal
- Not exceed the permitted period of stay in Portugal
For more. ePortugalGov
+ The best place these days to find how to do anything is to ask Google. IGoogle’s search is getting better as it uses more and more AI.
No comment.
Favorite New Yorker cartoon:
Portugal is a fun place to visit and a cheap place to live. Many retired Americans make their new home here. Bring money and Portugal will welcome you with all sorts of goodies — a long-term stay visa, etc.
See you from Madeira where we’re going tomorrow. — Harry Newton
