Wednesday, May 19, 2021

 Crypto Meltdown



Feels like 1636 all over again today with crypto crashing anywhere from 25-40%+ depending on the "currency" and, as expected by yours truly but apparently not by Coinbase, surging volumes at a key inflection point has taken down the major trading platform. All is definitely not well in cryptoland...at least with the Tulip Bubble you got some nice flowers for the cost of a home.

The problems with crypto are legion. First, it is not cryptocurrency in any traditional sense of the word cryptology...the entirety of the "currency" is easily tracked and this author believes it also can be seized or frozen very, very easily by the state. If the NSA is capable of tracking every conversation and data transmission in and out of the United States, then monitoring cryptocurrency is a piece of cake. But that's not necessarily the biggest problem with this "currency."

Crypto isn't backed by anything, except slave labor in China and fossil fuels (read coal) to mine it and put it into circulation. Once in circulation, crypto is subject to all sorts of tracking and seizure risks. With no physical representation, it lacks true portability. You own crypto at the pleasure of the state.

The best thing that could happen to crypto is happening. It is deflating. Confidence is eroding and its viability is being questioned. Readers of seminal classic "Extraordinary Popular Delusions and the Madness of Crowds" by Charles Mackay will recognize all the symptoms of a bubble in crypto. Shouting from the rooftops "the emperor has no clothes," however, often gets the cryer hung. Mackay said it best when he remarked "Men think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one."

For thousands of years gold has been used by man as money. It requires toil to acquire from nature. It is rare. It cannot be created by man. It is malleable. It is portable. It feels nice. When it is in your hand you have little doubt what it is. "God's money" has been the basis of civilization almost since creation. True "crypto" is buried in the Earth. I would encourage financial farmers to consider its value to your portfolio.