Crypto Myth and Market Reality

The Myth

The prevailing theory is that the cause of the decline in cryptocurrencies lately is that the “banks” and Wall Street want to undermine the market for decentralized currencies to either steal the technology like the record industry and Apple (AAPL) did with Napster, or to eliminate a viable competitor to the Wall Street and banking industry cabal.

The Reality

The reality is that, like the introduction of every new technology that turned out to be revolutionary and widely dispersed to the point that it became second nature in its use and profound in it’s application, the price/value of such technologies is only relevant to the use.

In the formative stages (right now), blockchain technology is trying to find its footing in the world.  Make no mistake that blockchain is here to stay and it will likely permeate everyone’s lives, like it or not.  However, as with the canal, railroad, airplane, automobile, computer, biotechnology, and internet bubbles before, there will be thousands of contenders but only a dozen survivors (at most).  The risk of loss is significant when there are more than a thousand different cryptos out there and we all know there should be two dozen, at best.

The Market Reality

Everyone loves a great conspiracy theory.  However,  The last week of market volatility is proof that when everyone wants to sell, it doesn’t matter what they are holding.  Take for example the Dow Jones Industrial Average (DJIA) and Bitcoin (BTC).  The chart below shows the hourly percentage change in BTC  (cryptocurrency) versus the DJIA (Wall Street/bankers) from January 30, 2018 to February 5, 2018.


In the last week, it should be more difficult for someone to make the claim that Wall Street is pushing down cryptocurrencies while at the same time, Wall Street is falling as well. 

Our take on the matter is actually quite the opposite of the conspiracy theory, if Wall Street can continue to rise, there will be more money and enthusiasm to fund hair-brained ideas within the crypto space.  However, when the money drains out of Wall Street, it will also drain out of all the cool ventures that support and ensure the organic growth of the crypto environment and at a ridiculous rate.

The question might come up as to why BTC is crashing more than the DJIA if everyone is selling in all markets.  In a nutshell, familiarity.  The DJIA has been around for more than 120 years.  BTC has been around for less than 10 years.  Anyone unfamiliar with the risks of a new venture is naturally going to be more skittish when the old line investment (DJIA) is crashing, on a relative basis, and therefore would put into question the more dubious blockchain ventures, this in spite of blockchain technology possibly becoming bigger than the concept of money as we know it.

In Closing

As indicated above, cryptocurrency investors should embrace the idea that a rising stock market allows more money to go into more wasteful, and potentially lucrative, ventures in the blockchain universe than a falling stock market.  Just for the sake of better understanding the point we’re trying to make, get a copy of the book F’d Companies: Spectacular Dot-com Flameouts by Philip J. Kaplan.  You’d be surprised to know that even though there are some ridiculous concepts for dot-com companies, there are still many that would be incredibly lucrative today if the stock market didn’t crash like it did from 2000-2003.

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