Bitcoin and the Samsung Massacre

Jack and the Beanstalk

I’ll start with a disclaimer. I do not really understand cryptocurrency.

I like talking about it though, which puts me in a strong majority.

Over Christmas, whilst enjoying a quiet coffee, I overheard a discussion amongst three tradesmen. It was in Donegal, but I have decided to retain the dialect and not paraphrase, as I feel it more amusing.

“Hi, lad, what about that bitcoin business”

“Fierce isn’t it, sir!!”

“I bought the weins bitcoin packs from Santa. For 50 quid, ye get 25 quid worth of bitcoin and a trading manual”

“Yours are young are they not?!”

“Aye — 7,9 and 13”

Now, I must say I did guffaw into my cup loudly. The notion of Santa’s elves gleefully mining bitcoin to hand over to infants at double the price is, frankly, bizarre. I briefly toyed with the idea of trademarking “Sterling Packs” at it did seem to be a rather lucrative endeavour — fools and their money are easily parted and all that. It reminded me of Jack and the Beanstalk, and his magic beans.

It is rather worrying though. For every Donegal tradesman, there are thousands of clueless cryptocurrency advocates. It’s becoming the Veganism of the financial world. To these people, an admission of not owning cryptocurrency is the gravest of insults. It will illicit immediate distrust. Not dissimilar to tucking into surf n’ turf down at your local hipster establishment. Frowned upon.

The Moral High Ground

Since every action has an equal and opposite effect, a new breed of odious naysayers has also emerged. They will generally reside on top of a hill, casting aspersions from their moral high ground.

“Bitcoin is a fraud. If you are stupid enough to buy it, then I’m not going to talk about it anymore” — Jamie Dimon, CEO of JP Morgan, speaking in September, before betting on the technology underpinning cryptocurrency in October.

“Bitcoin is a bubble, to be avoided at all costs” — self styled, legendary stock picker, Neil Woodford.

“I’m very sorry for the poor performance of our funds” — also Mr Neil Woodford, commenting on the various losses he has made investors this year.

There are a couple of things worth noting on the back of these quotes direct from Moral High Ground HQ.

First — “DO YOUR JOB, LADS”. You chaps are paid to make your investors money. Do it. Spot the trends, and reap the benefits.

Second — to Mr Woodford. You have been betting on biotech firms. Fine. Very intellectual, admirable endeavours — but since all biotech firms require huge volumes of capital to possibly get FDA approval, then, they are also very risky.

Ask yourself this, sir, — Do your investors who have invested their pensions with you want returns generated, or do they want faux intellectual musings on bubbles? The former, I suspect.

Tulips

Of late, cryptocurrency scaremongers have been throwing around a dubious analogy about tulips. People are loving it — my Facebook feed is now polarised between “Crypto Traders” and images of tulips. Both are equally ridiculous.

The tulip analogy is derived from a supposed tulip buying craze in The Netherlands in the 1600s. What?! 400 years ago?!

I’ve even seen graphs about it — presumably derived from a sketch with a quill on old parchment, found during a dungeon renovation.

Who started this nonsense about tulips? Ah, yes. Paul Donovan, a Chief Economist at UBS Bank. A terrifically impartial individual. I wonder could rise to fame by comparing it to football stickers or Pokemon cards in the 1990s — people would love it. I would consider it a great triumph.

Equally frustrating are the new breed of financial gurus who will tell anyone that listen, the cyrptocurrency is a “bubble”. They will nod sagely, as if imparting timeless wisdom, and inform you that it is just like the American housing market. They have watched “The Big Short” at the Cinema, and now consider themselves to be the Aristotle of the financial world.

To them, I would say two things.

First, the housing market collapsed because the banks lent too much. They ran out of money to lend. That’s why it collapsed. Not because it had suddenly become a foolish investment.

Second, what actually is a bubble? An inflated price? It’s not actually a thing, really, is it. If cryptocurrency is a bubble, then so is the entire stock market. Snapchat, for instance, is gleefully losing money hand over fist. Lost $514M in 2016. May never reach profitability. Still valued at $17 Billion.

The Samsung Massacre

When considering the financial markets, I find it imperative to remember one critical rule:

“It is all nonsense”

Stripping away the intellect behind stock picking, often brings reward. Pick the stock that you think other folk will buy — do not concern yourself with price/liquidity ratio excessively, nor pore over 10 years of accounts in an effort to buy value.

At the end of the day, the rise or fall of an asset or equity is governed by Supply and Demand.

It’s no different to Derek Trotter flogging his solar powered microwaves outside the Nags Head. If enough people want them, the price will rise. If nobody wants them, the price will fall. Simple.

Returning to the hallowed stock market. There is a perception that traders are intellectual behemoths, who see things that nobody else will see. Ridiculous.

Supply and demand in the markets are simply governed by the flow of information. That’s why insider trading is such a big deal. News is generally perceived in the market as “Good” or “Bad”. If you can access such news early enough, well then you can process it before others, and buy or sell accordingly.

“Would like to clarify that Tesla is working exclusively with Panasonic for Model 3 cells. News articles claiming otherwise are incorrect”

Elon Musk sent this seemingly innocuous tweet in 2016. The great fellows in the banking sector correctly interpreted this news as Panasonic: Good, Samsung: Bad — and $580 Million (!!) vanished from Samsung’s market cap immediately.

Had the Samsung factory burned down? Were the employees massacred? Had the fundamentals of the business been dramatically altered? No, Elon Musk sent a tweet and started a selling frenzy. No intellectual rigour, simply the flow of information.

I am quite sure, that, if I put my mind to it, I could destroy an AIM listed Company share price. Such is the power of social media. Enlist ten friends, and fire off tweets such as “AUDITOR UNCOVERS SHOCKING TRUTH” — suitably vague, and suitably difficult to disprove. A few retweets later, and we would be gleefully chuckling from prison, as the stock hits an all time low. Such is the frivolous nature of the markets.

You can see, then, why these intellectual powerhouses speak out against the perils of bitcoin. They missed the boat, and therefore they wish to scuttle the boat with damning indictments. Beware their criticism.

Rarely do I agree with the really smart and stable Donald Trump, but, on “Fake News”, he might just have a point.

No Less Ridiculous

I have no idea of the pricing prospects for cryptocurrency. Such is the fickle nature of the stock market, then it could crash at any time on the back of a well timed tweet from Bill Gates. Equally, seemingly, the day and hour that Elon Musk publicly gives his seal of approval to Bitcoin, will be a glorious day for all crypto-punters.

And, here’s the crux of it. Cryptocurrency is no less ridiculous than any equity or commodity. It is subject to the processing of information, and the ebbs and flows of supply and demand, just like everything else.

In fact, put yourself in the shoes of the average punter.

You take a risk and buy £500 of Apple Shares:

(i) You won’t, in fact, actually own any apple shares. The broker does.

(ii) You won’t receive a share certificate, nor a cordial invitation to the Apple AGM. Good luck attempting to vote.

Or, for the more conservative punter, let’s work with a commodity, £500 of Gold:

(i) Your postman will not wearily cart your Gold to the door.

(ii) Don’t go into Subway and try and buy your footlong with your gold.

At the end of the day, just like cryptocurrency owners, you will be checking your app daily to assess whether the value of your investment has gone up or down.

It could be argued that it is, in fact, a better bet since you actually own something you can transact with. Crypto approved retailers are, granted, few and far between — for now. But if you buy £500 worth of crypto and wish to buy something with it, you can. Try that with your shares in ASOS and see how far you get.

Aside from the faux intellectual powerhouses of the world, like Mr Woodford, you will also find that your milkman considers Bitcoin to be a bubble.

Why?

We live in an economic climate where Deliveroo is valued at $2 Billion!! Lads on bikes that deliver food. My Grandmother, who is 90, used to have her meat delivered by a lad on a bike in 1940!! Had the Butcher in question waltzed down to Wall Street and attempted to list his business at 2000 Guineas, he would have been sent to an asylum.

Hype, fuelled by the era of social media and the accessibility of trading to the normal person, has become the new norm. Follow the hype.

The economy is underpinned by trust. We trust that the scrap of paper with “10” on it, is redeemable at ten pounds, since it is a Fiat currency, backed by the government.

Scarcity creates value in any asset. That’s why dogs are cheaper than pandas, and why we eat chicken sandwiches everyday, not duck.

If cryptocurrency remains scarce, and the technology robust, then it is here to stay.