Tulips, Cryptocurrencies, and The Alfie Coin

By Jeff Kelly on July 12, 2017

“Eventually mainstream products, companies and industries emerge to commercialize it; its effects become profound; and later, many people wonder why its powerful promise wasn’t more obvious from the start. What technology am I talking about? Personal computers in 1975, the internet in 1993, and -I believe-Bitcoin in 2014.”

Marc Andreessen, Andreessen Horowitz

At the Kelly & Wohlner Group, we have decided the whole stock, bond, and mutual fund thing is a bit boring and repetitive. Long term investing, compounding, and so forth is so 2016. Looking at all those charts and reading all that research seems pointless when we can just invest in the new thing: cryptocurrencies. After all, Bitcoin is up over 1300% over the last couple years, and another coin, Ethereum is up 2,500% since January 1st. Why would you invest in anything else?

Most of these coins rarely trade. Many have zero liquidity. You certainly can’t short them, but who cares, they are going UP! And like all new things that go up in value, there are others that try to follow suit. We now we have between 800 and 900 different cryptocurrencies to chose from. The names are cool too. Feather Coin, Peer Coin, Lite Coin, Name Coin, Pot Coin, ZCash, Prime Coin, Ripple, and one name that simply spells trouble, Zero Coin. I was a little thrown off when I found out the 3rd largest cryptocurrency was called Ripple. In college, Ripple was a cheap wine they served at parties! Now it’s a currency. Who knew.

Back in the day, circa 1999-2000 we loved IPO’s. We bought them. They went up. We sold them. Now, the newest, newest thing are ICO’s, initial coin offerings. These offerings are coming fast and furious. There is now $100 billion invested in cryptocurrencies. See link:

http://www.marketwatch.com/story/with-bitcoin-surge-cryptocurrencies-top-100-billion-in-market-capitalization-2017-06-06?mg=prod/accounts-mw

$100 million was recently raised by a new coin, Tezos. The most puzzling part was that no Dollars, Yen, or Euro’s were used to pay for this new offering. The $100 million for the Tezo’s offering was paid for with Bitcoin and Ethereum. Call me skeptical, but that seems a bit strange. Did no one want to invest Dollars, Yen or Euro? Odd, no? Click link for the story:

http://www.trustnodes.com/2017/07/02/tezos-ico-raises-100-million-first-days

I can make a case, in fact a pretty good one, that cryptocurrencies are the natural evolution of the internet. The internet at its core is the ultimate tool for eliminating the middle man. The internet has eliminated the need for many types of physical stores, mail is a fraction of what is used to be, and almost anything we’d like to purchase can be done without a salesperson or a distributor. The idea of these currencies is to reduce the cost of completing transactions and remove the fluctuation of currencies. These cryptocurrencies take away the middle man of the Central Bank/Country policy on the value of currencies. These goals are laudable. The fees banks and credit card companies charge for wires, purchases, etc., are ridiculous in the internet age. The cost of these transactions should be much lower. That is why many people between the ages of 18 and 40 use Venmo. Venmo is a digital wallet that lets you make and share payments with friends. You can easily split the bill, cab fare, or other purchases. People who are using Venmo are very comfortable with digital money. Cryptocurrencies fit into the view of money in much of this age group.

The chart below shows several “bubbles” and where the rise of Bitcoin ranks. It’s pretty much in a league of it’s own. Some bubbles are just that, bubbles. Others are a bubbles for the time when the price appreciation occurred, but the value proves out over time. An example would be the NASDAQ run up into 2000. While technology was ahead of its time, it has shown it’s worth, and the NASDAQ has eclipsed its previous peak.

Here is a weird question: how much would you pay for a tulip? In 17th century Holland, it may have cost you your entire home, and you probably still would have paid up. There have been a lot of economic bubbles and subsequent crashes over the years such as, the dot com bubble, the stock-market bubble, the real-estate bubble, but one you may have never heard of is the Tulip Bulb Market Bubble of 17^th century Netherlands. For a variety of reasons, Tulip Bulbs became absurdly valued. FYI, Tulips never came back. See link and graph for the story:

https://www.economist.com/blogs/freeexchange/2013/10/economic-history

Graph from Elliot Wave International

Many very smart, sophisticated investors are investing in cryptocurrency. It’s likely the these will play a roll in the marketplace of the future. What place it holds and which currencies stay viable is anyone’s guess. Let me give an example from the dot.com era. A company named Pets.com came public towards the end of the IPO craze. They were, as the name implies, a retailer of pet goods online. They came public in August of 1998. They liquidated 268 days later. In between, they advertised during the Super Bowl and made an appearance in Macy’s Thanksgiving Day parade. While they seemed like a promising company, the public was just not ready to buy pet food on line. In April of 2017, Chewy.com, an online retailer of pet supplies was sold to PetSmart for $3.35 billion. It was the largest eCommerce acquisition ever. Story in link:

https://www.recode.net/2017/4/18/15339208/petsmart-chewy-acquisition-price-3-35-billion

No one knows the eventual outcome of the current mania for cryptocurrency. If history is a guide, many dollars will be made and lost. Like anything else, we should invest in what we understand. If we want to invest in something this complicated and difficult to understand, it should be with someone who understands the technology and the marketplace. These folks are few and far between and are generally very young. If you are involved directly with these currencies, please be careful.

However, despite our worries and concerns, today, we are launching our new cryptocurrency available exclusively at The Kelly & Wohlner Group: the Alfie coin! One can be seen below.

I can assure you at the end of the day, the Alfie coin will have no value. But at least you will have this very cute picture of him. That is more than many will be left with at the end of the cryptocurrency phase.

Have a great week.