BITCOIN? Nada...

• 10-May-21
• admin

BITCOIN? Nada...

Recently, a number of people asked me what I thought of Bitcoin. The point of the question, I suppose, is whether I thought the long rally by the crypto currency during the pandemic made sense and if I thought it would continue. Since those questions began, Bitcoin has dropped 20 percent.

My simple answer was that I know nothing about Bitcoin and really not interested to know. This is largely because I have met a number of people who are involved in crypto currencies, and I have never found anything they said to be, shall we say, genuine. It is usually about how they can manipulate or corner the market and make more money from fools. In stock markets, that strategy is called "pump and dump".

Even without those disagreeable encounters, I have found the intellectual underpinnings of crypto currencies lacking an appeal for me. The talk that it enables individuals to be outside the control of governments actually makes me angry. Yes, I get it that not all governments in the world are effective, and even effective governments have obvious failings, but that is no reason to participate in an unregulated currency. If you don't like USD, go buy NZ dollar, or RMB. Or SGD. Why Bitcoin? In the business of managing a currency, most governments get it right most of the time. To say that a private market completely devoid of administration can do it better is hype and hyperbole. That argument finds no favour with me. It makes the person who thinks he can do better than a typical government, a megalomaniac.

In particular, since I am not planning any criminal or such other nefarious activities, why would I need to bypass governmental scrutiny? Instead, I see this space as a place where no one is responsible for anything.

It seems that crypto currency is mostly a game computers jocks play. I have no such skills, and to avoid being creamed or scammed, crypto currency investing is a nada for me. It gives bad vibes in the first place, because if one looks up bitcoin on the web, it is inevitable that one comes across an image of a gold coin with a B on it. That is an optical illusion - there is no such gold coin anywhere in the world. What Bitcoin really looks like is this:

01000100011100101000100011111101001010101010000001100...

Would you buy that? With real cash?

One of the features which is supposed to make sense in Bitcoin is that it has a limited supply. 21 million coins, if my memory serves me correctly... Well, so has every stock on the planet - the number of shares are also limited. So did tulips in Holland in the 17th Century.

There is also the argument it has a limited supply that cannot be changed. So if everybody buys, it will go up. What argument is that? It is a stupid one. What if the whales sell?

Experts have estimated that in this game, there are about 2 percent, apparently, who own 95 percent of the supply. Whales. Are you one of them? You are volunteering to be bullied.

Recently, I came across an article in the New York Times, which reminds me why I should not be involved in crypto currency investing. The article was written by by Nathaniel Popper, The New York Times, Jan 14, 2021. You may read it here:-

Lost Passwords Lock Millionaires Out of Their Bitcoin Fortunes - The New York Times (nytimes.com)

Image by VIN JD from Pixabay

Yup, I am one of those who forget passwords. It is a common human failing since there are so many things that need passwords all the time these days. And if you are putting 33,000 USD into a single Bitcoin, you won't want to use a simple password or your favourite password. So you have to write down that unusual number, digitally or in good old fashioned longhand on a piece of paper. Put it away somewhere, and either way, if you remember where you put it after not using it for a year or two, tell me what is your secret for remembering things you don't touch in a long time. Accidents also happen, not to the bitcoin, but to your password or the way you store the password.

If you are smarter than all those folks who do computer programming for a living, then bitcoin may be just another online game and can be fun. And profitable since the game can be cashed out in hard cash. Indeed at some point, it is ironic that you need to cash out to the real currencies you don't trust to make it really make sense. It's not a game for us non-nerds who can just stay with the real currencies in the first place.

Besides, at the current price of Bitcoin, if it turns out to be the next big thing, and goes to frequently articulated targets (50,000 USD? 70,000 USD?), then the risk reward ratio at 33,000 USD is not that great. You might want to wait for the next major crash first because you join the game.

Wai Cheong

Investment Committee

The writer has been in financial services for more than forty years. He graduated with First Class Honours in Economics and Statistics, winning a prize in 1976 for being top student for the whole university in his year. He also holds an MBA with Honors from the University of Chicago. He is a Chartered Financial Analyst.