King Crypto is Dead! Long Live King Crypto 2.0?
Asking important questions about crypto and and its intrinsic value.
Source: Kanchanara via Unsplash
As the crypto mania has subsided over the past few months, most non-professional investors have jumped into any lifeboat they can or drowned. We at Don’t Count Us Out Yet have stayed on the sidelines because of the volume of “noisy” articles that really aren’t relevant to what comes next.
But now we would like to chime in. As good investigative researchers trained with a journalistic perspective, we always start by recognizing what questions one needs to answer before moving forward. So, how do we start thinking about that?
We start this piece with two of our favorite quotes, which are quite applicable to the current crypto crisis. The quotes are “History doesn’t repeat itself, but it often rhymes” and “Timing is everything.” The second one has another part to it, and we will fill in the rest later.
So, what are the right questions to answer regarding where the crypto industry might be headed? Not being experts on this, but good researchers looking at what many experts think and general public opinions, we would focus on three.
Is the crypto industry doomed to fail as it really has no true usefulness except being a speculative asset?
If crypto does not fail, are we at he bottom of the cycle where the speculative investors are out and there is some true intrinsic value?
If not, what needs to happen in order for this to occur?
Tough questions indeed, but let’s start to make sense of them with some data and thoughts.
First, over the past 50 plus years that we have witnessed financial ups and downs, we remember four important financial manias that took hold where everyone thought they could make lots of money just by investing with everyone else.
Here are those four financial manias.
Junk bonds in the 1970s
Portfolio Insurance in the 1980s
Rise of the internet and creation of web products in the late 1990s and early 21st century
Speculative real estate purchases with little or no money down in the first decade of the 21st century
Funny how we all want to jump on these “get rich quick” approaches. These four seem to rhyme in history with what is going on today in crypto. All four at the height of their mania had amateur investors that didn’t really understand what or why they were invested, but were sold the product by those who mainly told the story on how much others made and they could to. The incentive for the financial sellers was to keep the story going to make or raise money just like tulip bulbs valuations many centuries ago.
Second, besides portfolio insurance for investors, the other three manias did have some fundamental usefulness in the financial system and survived. The cost to invest at the time became too high due to speculation. So, crypto investors now need to look at what they think is the intrinsic crypto value and make sure that value is close to what the price is to invest. All four previous manias, like crypto, way overshot the true intrinsic value. However, three of the four still remain.
So, we would like to take you back to an article we published in mid April on the fight between Web 3 and Web 3.0 proponents as a way to think about intrinsic value in Crypto.
The Web 3.0 group is full of the traditional finance and tech experts/investors wishing to make money on the new Web 3.0 breakthroughs and, therefore, creating products and companies to do this in the existing financial system.
The Web 3 group believes crypto is a disruptive financial product that will make the cost of using and getting money incredibly cheaper by eliminating many aspects of how we do currently.
Both Web 3 and Web 3.0 are worth examining to see what truly is the intrinsic value in each and what might happen if one become dominant over the other. We don’t profess to have the expertise to even comment on which looks better, but we recommend one to watch both sides of the fight.
Are we at the bottom of the crypto valuation cycle? Does it have real usefulness, not just hype?
Worth watching both countries. For example, Nigeria, Bahamas and El Salvador, who want to disrupt the current country currency approach to see how they come through. Also look at companies creating their own currencies for use in investing in digital products. Going to be an interesting next 12-24 months regarding this fight.
Finally, what really needs to happen to have crypto become a valuable, useful tool for the financial markets or not? As Warren Buffet says,"It is not a productive asset and does not produce anything tangible." Well, it certainly won't unless it disrupts the current financial systems in a more effective or equal way. (Watch out dollar if it does!)
Otherwise, it needs to create better financial products to use in the existing system. In order to even have a chance of doing that, it has two major problems that need to be addressed. We identified these problems in our earlier piece on understanding crypto, which include environmental energy issues/costs and ease of fraud when using. Watching for possible solutions in these two areas will really help crypto possibly become a major financial force. Without solutions to these two issues, it will probably never amounts to much other than speculative purposes.
Having started to answer these three questions, a fourth question arises. Have we helped you with any decisions on what is going on with crypto?
Probably not with a decisive answer, but perhaps a framework that might help with some decisions in the future. We leave this piece with what we told you was the second part of the quote.
"Timing is Everything, but there is never a perfect time for anything!”