I’ve asked myself two things recently.
1) Why the hell aren’t cryptos bullish again?
2) Why is the interest in cryptos when micro cap and small cap equities have been about for years?
Before I go further, I just want to put a disclaimer: I believe that cryptocurrencies and blockchain are going to be vitally important over the coming decades as we moved towards an even more digitised form of information and money transfer.
However, we have to overcome the primitive nature of the industry first – I believe that investors make their own luck through correct due diligence and own research, however, many of the crypto firms are just downright dodgy.
Notwithstanding Bitconnect, because that was just plain stupid and so easy to see that it was a Ponzi scheme, we’ve had a fair few ICOs popping up that have been fraudulent.
You tend to not have any fraudulent IPOs or equities listings where your money will be in effect, stolen. You might make a crap investment decision, but the company balance sheet, business plan, and overall health is available for all to see.
But this comes down to regulation – something that I am not sure that I or anyone wants.
The reason being is that, by doing your own research, you should come to a valid conclusion as to the business and investment risks. I don’t necessarily want a government department telling me what is good for me – if you’re stupid enough, for example, to join Bitconnect, then you deserve to lose your money (if you live in a country with adequate investment education).
For what reason would an investor choose to buy Dogecoin as an example? Are there any fundamentals behind it? Well, no, apart from ‘moon!’. On which planet is that a valid investment case? If you make money then fantastic, but someone else is always losing in this case, since there is no value being added.
And it’s the same for many others.
People seemingly go headfirst into a nice sounding white paper, where, if one were to approach a seed investor for regular backing, you’d get maybe 0.1% the total capital at that stage due to there being no actual product and the angel/VC not wanting the undue risks.
The AIM market for example can act like a mini crypto market, just with possibly lesser gains on average – but that’s simply due to the fact that the market isn’t on major steroids.
You can put forward the idea that there have been many crypto millionaires made, but they are in a small minority compared to the rest (and the amount of losers probably outnumber the winners, the losers just don’t tell you about it) – there are similarly many AIM investors who have made a lot of money through simply buying and holding a select few good companies, or even day trading (except with no leverage).
I just find it odd that a huge bull market in AIM and small/microcaps to the same extent as crypto hadn’t really occurred, but you could say that it’s really due to the differences in the assets… but I mean, buying ultra low on any asset and making 70-100% pretty quickly (as occurs on AIM relatively frequently) is nothing to be unhappy about… unless you compare it to crypto.
This I’d argue, comes down to the demographics of those involved in the two markets.
I reckon we’re going to see larger gains over the next year or two in cryptos. When Fintechs start pushing for them to become more mainstream and the payments use cases are made even more viable, this is when regulators will get involved though.
But the good aspect is the nature of the beast… it’s pretty hard to regulate post ICO stage, the same as fiat currency markets, which are OTC and largely unregulated, and for good reason too.
I am totally here for what the developments in blockchain and crypto tech can bring, but providing credibility through weeding out the fraudulent ICOs will benefit this 10-fold in my view, and this will be a huge contention over the next 2-5 years (and probably a lot of money involved if a private solution could be found for weeding out the crap with total impartiality – thinking caps on).