Street Analysis

Is Bitcoin an illusion? Is it a Ponzi scheme? Is it a shell game? Or just plain blockchain technology?

Social Security is considered as a Ponzi scheme by some and shell game by others just as The University Pennsylvania, Wharton School of Business professor, Kent Smetters, opined recently to the Fortune magazine.

Similarly, just as the majority of a mankind, including myself, may suffer from the illusion and unable to discern “real from unreal” in all aspects of life, investors seem to be deluded about whether the Bitcoin is real or not.

The legendary investors, Warren Buffett and Charlie Munger, dubbed it as “rat poison squared”.

“Management is efficiency in climbing the ladder of success; leadership determines whether the ladder is leaning against the right wall.”  — Stephen R. Covey

It simply comes to down to the crypto world leaning against the wrong wall. Period. No matter how high it can go, it simply leans against the wrong wall. It is akin to the bridge to nowhere.

In reality, the days appear to be numbered for the Bitcoin as an investment. Is it heading to zero then from its current price around $75,000? The crisis is looming and U.S. appears to be getting closer and closer to the precipice of a major catastrophic event. From the edge of the cliff, one gentle nudge towards the valley and we are done.

We can make all the progress in the world only to get to the top of the ladder…that is leaning against the wrong wall. Then boom…it is nothing but a view of a hell. Then a sound of a thud to crash into a deep Death Valley.

Crypto lovers may like to say that thousands of obituaries have already been written for the Bitcoin and this asset class. True; that was then. This is now.

Now, we are about to enter the new era long in making. That is the difference. The opportunity or destruction is knocking on the door based on how we position ourselves.

It was post 2009 GFC (Great Financial Crisis) era that enabled and fostered this “pseudo asset class” owing to the “Zero Interest Rate Policy (ZIRP)”. Now, the reality is setting in – slowly but surely. It may take some time. However, those days are not that far when we will have entered the new era.

New era shall speak more to the ‘real’ money, ‘real’ wealth and not the fake or fiat money and fake wealth.

The secular trend of past 40 years from early 1980’s with the interest rates in low teens trending down to eventual zero during the COVID times in early 2020’s has begun to reverse and now we are at the beginning point of a new secular trend that is exactly the opposite of a previous one. Eventually, it will settle in at a nice comfortable place just like a pendulum of a dead clock.

Real money will start mattering again. Not just the fake money and fake wealth.

In that event, isn’t Bitcoin or crypto asset worth zero, then? Probably not or at least not right away. It may be worth one dollar like a stablecoin as the means of technology or platform. Like there are hundreds of money market funds with each share priced at a dollar. The same concept may apply here for the crypto class as well to be generous. If the blockchain technology for a given cryptocurrency is not worth even that value then it may eventually die and go to zero.

Essentially, the entire crypto asset class is all based on the hype and a sale of “promise”, not any underlying asset except for its technology platform, which can inherently not be any higher than its digital ‘token’ value, which shall be precisely at a dollar. That is what, thankfully, stablecoins attempt to do and they may succeed well at that. They already are succeeding. And as they say, they may ‘eat their own’.

Peter Thiel, the billionaire founder of PayPal and Palantir, lost tens of millions of dollars as he recently exited ETHZilla, Ethereum treasury, that was setup similar to Strategy, formerly MicroStrategy, (MSTR), for the Bitcoin treasury. That is enough of a cautionary tale. He is clearly an opportunistic investor as proven time and again whether we like it or not.

The real asset classes are only following five: 1) cash 2) stocks 3) bonds 4) real estate 5) commodities. Within this list of asset classes, first three are simply ‘financial’ asset classes whereas the real, real asset class, meaning ‘tangible’, are just the last two.

Anything else is only an illusion. Not real.

The crypto world “tried” really hard to make its place in the above list of real asset class for the last 15 years and it succeeded well enough to a degree to make its way into some folks’ portfolios including financial institutions, however, it’s likelihood to be the ‘real’ asset class for good is as low as to be able to travel to sun and return home safely.

If not an illusion, it is a mere fantasy of sitting on a pile of gold. Mere fantasy.