Bitcoin has over 2,000 competitors. They have all crashed. Here is a list of them.
That's right: over 2,000 currencies, each one said to be "the technology of the future."
I have never seen a Ponzi mania like this one. This mania is measured by the number of crypto non-currencies in the marketplace
Year after year, all of these competing companies were selling the same dream to suckers: get fabulously rich quick. And some people did . . . if they sold their play-pretend money for real money, meaning dollars, yen, and euros.
The entire investment strategy was based on the greater fool theory. There has to be a greater fool willing to buy whatever it is that you have bought at a price higher than you paid. But today, with the market down by 80%, the greater fools are the suckers-turned-dreamers who held on to their crypto non-currencies.
The dollar-denominated (real money) price of one bitcoin, which is the main crypto non-currency, recently fell below $3,600. For comparison, on November 12, it was $6,400. By any standard, this is a panic selloff.
Here is the good news. The vast majority of investors never got into this Ponzi scheme. It was too difficult to get into. On the other side of the ledger, no serious businesses were actually selling anything for these non-currencies. It was all based on "pie in the ether by and by." The mania was confined to a very small segment of the population. Computer geeks got into it early. At the end of the mania upward, upper-middle-class people got into it. A few rich people got into it. But most people have not been hurt because most people never got into it.
Among the tiny fraction of the population that did get into it, everybody in 2017 thought he was going to get rich. Everybody hoped to find a greater fool to sell to. But when there are over 2,000 companies seeking for greater fools to sell to, it was clear what was going to happen. The suckers who got in late were going to have their heads handed to them. When everybody hears about a crypto non-currency, it's too late.
I wrote this on November 29, 2013. I was the first Austrian School economist to identify this market as a Ponzi scheme. I stand by my judgment.
WHAT GOES UP COMES DOWNThis will lead to the ruination of more people than any private Ponzi scheme in history. There will be the poor schnooks who get in at the end, paying perhaps thousands of dollars per Bitcoin. Then the market will unravel. It will unravel for the same reason that all Ponzi schemes have unraveled: not enough new buyers. When the new buyers do not show up in great numbers, the holders will start to dump them. What went up in price, as measured in dollars, the real money, will come down in price.
This mania is going to be the stuff of best-selling books. This is going to be this stuff of Ph.D. dissertations in economics and psychology. This is going to be the equivalent of Mackay's book, Extraordinary Popular Delusions and the Madness of Crowds.
The interesting thing is the mania started among the most technologically sophisticated people on earth: computer techies. The techies who got in early are going to be fabulously wealthy . . . if they sell. But the poor schnooks who come in at the and are going to lose money. Collectively, this will be the greatest single scheme for lots of people losing money that we have ever seen. This Ponzi scheme is not illegal . . . yet. It will spread. It has gone viral.
Any time you buy an investment, you had better have an exit strategy. There is no exit strategy for Bitcoins.
You must get out at the top, or you lose your shirt.
CONCLUSION
Anytime that anybody tries to sell you an investment, you have to look at it on this basis: "What are the future benefits that this investment will give final consumers?" In other words, how does it serve the final consumer? If it does not serve the final consumer, then it is a Ponzi scheme.
Bitcoins cannot serve the consumer. There is nothing to consume. The only way that Bitcoins can work to the advantage of the consumer is that they provide the consumer with increased opportunities, based on Bitcoins' function as money. But the fundamental characteristic of money is its relatively stable purchasing power.
Bitcoins will never achieve this. It is a mania going up. It will be a mania coming down. It will not increase the division of labor, because people will recognize it as having been a Ponzi scheme, and they will not again buy it. They will not use it in exchange. Companies will not sell goods and services based on Bitcoins. Bitcoins have to have stable purchasing power if they are to serve as money, and they will never, ever achieve stable purchasing power.
Whenever somebody tries to sell you an investment that is based on the economic analysis of a market -- an analysis that cannot possibly be true -- do not buy the investment. This is a simple rule. I adhere to this rule.
There has to be an economic justification for a capital investment, and there is no economic justification of buying Bitcoins as an alternative currency. That was how Bitcoins were initially sold, and it was impossible as an economic concept from the beginning. The Austrian theory of money shows why.
I do not invest in capital that has no economic justification other than the greater fool theory. There are too few fools to keep the scheme going.
Bitcoins are not illegal. They should not be made illegal. They should merely be avoided.
A week later, I posted an imaginary interview with Bitram "Bitty" Coins, the nation's leading expert in the bitcoin market. That interview got to the basics.
I repeatedly told my readers what would happen to this Ponzi scheme. It has now happened. So far this year, this get-rich-quick scheme has destroyed $700 billion worth of supposed equity. It was fake equity, as all Ponzi schemes are. Investors cannot actually cash out, or in this case, "digit out." It was la-la wealth based on la-la money. Most of the la-la wealth in this market is now gone. Sadly, the real wealth -- digital dollars that the suckers paid for the crypto non-currencies over the last 18 months -- is also gone. The sellers of the various crypto non-currencies took it and deposited it in real banks. That's the way manias work. "Stand still, little lambs, and get sheared." (Never was a scam better named than Sheep Marketplace, which skimmed off $100,000,000 in bitcoins. The company's owner was indicted four years later. No word yet on the trial or the missing money, either the real money or the bitcoins.)
When a market collapses by 80%, there is not much more to be lost. But I think there still will be more losses. People who are still holding onto their lone bitcoin in the vain hope the price is going to go above what they paid for it are going to be disappointed. At some price, most of these people are going to sell. There are not going to be any greater fools to buy one bitcoin at the price they hope to get for it.
Remember this: when you invest in an asset on the basis of the greater fool theory, and you invest late, you are the greater fool.
In penny stocks, there is a strategy called pump and dump. In the world of crypto non-currencies, it was called the wave of the future.
Some wave. Some future.
It was a Ponzi future. I said so in 2013, and I am saying so now.
AUSTRIAN NON-ECONOMISTS HYPED THE NON-CURRENCIES
In the run-up of this incomparably popped bubble, there were people proclaiming their commitment to the monetary theory of Ludwig von Mises. They justified their commitment to this obvious bubble in his name. I had heard of only one of them, and he is not an economist. Some examples are here, here, here, and here.
This man is a card-carrying economist. He wrote an entire book linking Mises to bitcoins. No one in the Austrian economics movement had ever heard of him before this book, which is a good thing as it has turned out.
Bitcoin and the other 2,000 non-currencies are all on life support. In contrast, Mises' theory of money and credit is alive and well.
Money must have stable purchasing power. There was one thing predictable about the crypto non-currencies, and I predicted it: they would not maintain their purchasing power.
They have all gone "splat!"
CONCLUSION
What went wrong? This. A bunch of computer programmers with hardly any money, zero business experience, and little understanding of either monetary theory or banking practice told trusting, naive people that some anonymous Japanese computer geek had invented the next worldwide money. The programmers babbled in techie gibberish, and trusting non-geeks, who did not understand a word of it, then wired money to 2,000+ companies that sold digital pixie dust.
Ponzi come, Ponzi go.
The next time that a computer programmer who says he has Ludwig von Mises on his side tells you of a scheme to get fabulously rich while replacing all central banking, run this through your mind.
Somewhere over the rainbow way up high
There's a land that I heard of once in a lullaby
Somewhere over the rainbow skies are blue
And the dreams that you dare to dream really do come trueSomeday I'll wish upon a star
And wake up where the clouds are far
Behind me
Where troubles melt like lemon drops
Away above the chimney tops
That's where you'll find meSomewhere over the rainbow bluebirds fly
Birds fly over the rainbow.
Why then, oh, why can't I?If happy little bluebirds fly
Beyond the rainbow.
Why, oh, why can't I?
Head for the storm cellar. You won't go up into the land of Oz, but you also won't come down . . . hard.
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