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Cryptocurrency Market – Which of the cryptos will be the ultimate winner(s)?

Cryptocurrency Market

Which of the cryptos will be the ultimate winner(s)? – Cryptocurrency Market

 

I think they will implode and no longer exist in any meaningful sense in a few years. I believe that the entire cryptocurrency market is a bubble and that it won’t end well for “investors.” I put “investors” in parentheses because investors aren’t making capital commitments to cryptocurrencies. Speculators are doing so. There is nothing to support the valuations of bitcoin or any of the other so-called cryptocurrencies as they don’t have any cash flows associated with them. Like gold, it doesn’t pay dividends or have earnings. But, at least gold has some industrial and other uses and some real, not virtual, limits on supply.

 
In order to profit, speculators rely on the “Greater Fool Theory” – that is, that some greater fool will come along and pay you more than your purchase price. One can certainly get very wealthy if your speculation is correct. You don’t, however, want to find yourself without a chair when the music stops.

Despite my skepticism, cryptocurrencies and blockchain technology may very well transform the way we do business. In fact let’s assume that happens. According to CoinTelegraph.com there are over 4900 cryptocurrencies. For an example of how crowded the crypto space is, one need look no further than the announcement that former US Senator Rick Santorum is involved with a project to launch a Catholic cryptocurrency called Cathio. The question the zealots should be asking is if cryptocurrencies have staying power, which of the cryptos will be the ultimate winner(s)?

 

I am reminded of an anecdote that Berkshire Hathaway Chairman Warren Buffett relayed in a 1999 address before investment professionals in Sun Valley, explaining that many investors in innovation end up disappointed. Arguably the most important invention in the last century was the automobile. Yet, in the early part of the last century there were two thousand auto companies. The advent of the automobile had a transformational impact on how we live. If one had a crystal ball and knew at the time of the first cars how much this country would rely on automobiles, one would likely have invested heavily in the technology. Buffett explains, however, that of the two thousand companies, as of the late 1990s, only three car companies survived. He went on to say that at one time or another, all three were selling for less than book value, which is the amount of money that had been put into the companies and left there. While autos had a tremendous impact on society, investors weren’t duly rewarded.

 

My favorite quip about cryptocurrencies is from octogenarian T. Boone Pickens who said At 89, anything with the word crypt in it is a real turnoff for me.

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Robert Johnson

Robert R. Johnson, PhD, CFA, CAIA is a Professor of Finance at Creighton University’s Heider College of Business. He is also Chairman and CEO of Economic Index Associates, a NYC-based firm that develops investable indexes. He was formerly President and CEO of The American College of Financial Services in King of Prussia, Pennsylvania. He has published extensively in financial journals and has been widely quoted in the financial press.

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