Commodity Insight: Crypto chaos

The crypto industry has slipped into chaos and bankruptcy. The cryptocurrency exchange FTX, one of the largest in the world, collapsed in a week and filed for bankruptcy.

At its peak it had 1 million users and was worth $36 billion just a month ago, while its owner, Sam Bankman-Fried, was worth $26 billion at the same time.

Now, both are pretty much broke. And it only took a week.

A bit over a year ago, I penned a column about the crypto markets, “Decoding the crypto craze.” Based on the mess making the news daily, I thought I would reprint most of what I wrote about back then.

When I wrote that column, Bitcoin traded as high as $60,000, but a few weeks ago it was as low as $14,960.

“A recent headline on Insider blared: ‘Crypto fever has gripped markets this year, making stars out of Dogecoin, Shiba Inu and Solana, with investors pouring a record $8.9 billion into digital coins — more than in all of 2020.’

“Deep in the article comes the following: ‘Shiba Inu has a market capitalization of $30.6 billion despite only launching in August last year — making it the 11th biggest crypto by value, while Dogecoin is two rungs above, having gained an eye-watering 9,000% over the past 12 months, based on Binance.US data.’

“I cannot recall any group of markets or investments that receive as much bullish publicity as cryptocurrencies. Each day I pour over the news about markets of all kinds and cannot count the bullish articles about cryptocurrencies.

“For example, from Business Insider: ‘A crypto investor bought about $8,000 worth of Shiba Inu coins in August 2020. Just over a year later, the $8,000 trade has morphed into a value of about $5.7 billion. Shiba Inu coin is up more than 7,000,000% since its debut in August 2020.’

“The only ugly story about cryptocurrencies I have seen took place a couple weeks ago. From the BBC: ‘A digital token inspired by the popular South Korean Netflix series Squid Game has lost almost all of its value as it was revealed to be an apparent scam.’

“A few weeks ago, Squid was trading at just 1 cent. In less than a week, its price had jumped to over $2,856.

“But it was a scam as the buyers could not sell the coins they bought. Its value has now plummeted by 99.99%, said cryptocurrency data website CoinMarketCap.

“I hate to say it — and will likely receive flak and criticism — but cryptocurrencies remind me of the ‘greater fool theory’ that goes like this, according to Investopedia: ‘The greater fool theory argues that prices go up because people are able to sell overpriced securities to a greater fool, whether or not they are overvalued. That is, of course, until there are no greater fools left.’

“In 2013, only a handful of cryptocurrencies were in existence. As of this month, there are 7,751 available to the public to buy — and more being created weekly.

“From The Hill: Securities and Exchange Commission Chairman Gary Gensler said that the rapid proliferation of cryptocurrencies and investment products tied to them resembled the ‘wild west.’

“In August, Neel Kashari, president and CEO of the Federal Reserve Bank of Minneapolis, called cryptocurrencies out, describing them as ‘fraud’ and ‘garbage coins.’”

Do my ramblings about cryptocurrencies mean they are not the investment to make? All I can say about cryptocurrencies, or any investment, is to follow my two main rules.

Rule 1 is: No one knows for sure what any market will do. Not for sure they don’t. Rule 2 is: Always use a stop.

The motivating force behind the frothy crypto markets is FOMO, fear of missing out, which is understandable. But I remain skeptical about the crypto markets and consider it similar to buying a lottery ticket.

However, I am also an old guy looking at a newfangled market while moving my head back and forth, left to right.

Now, let me get this straight, the labor shortage is because workers are bucking low-paying jobs and trading cryptocurrencies instead?

And a number of Americans have given up their full-time jobs to trade cryptocurrencies for a living — for a living!

From Barron’s: “How long does it take to wipe out a $32 billion company, shatter confidence in an entire industry and leave a trail of destruction from Wall Street to Silicon Valley? In crypto, about a week.”

From Axios: “FTX downfall threatens crypto existence.” And from me in this Commodity Insight column: “Always use a stop.”