The Verus Team

Crypto – Crazy!

Written by: Derek Majkowski. Any opinions are those of Derek Majkowski and not necessarily those of RJFS or Raymond James.

I was recently inspired to find the following commercial that was run in 2006:

https://www.youtube.com/watch?v=zhnEjxsjjuA

Aside from bringing a chuckle, I was reminded of the story around the Pets.com sock puppet and what it ultimately came to signify and represent for both pop-culture and stock market history – to some extent.

During the dot.com bubble of the late 90’s and early 2000’s, some companies it seemed would just add a dot.com to the end of their business name and turn around and go public.  Pets.com had their IPO in 2000, reached a peak price of $14 / share, and subsequently fell all the way to $0.22 a share before the company went “poof” 9 months after the IPO.  The sock puppet went on to do commercials until 2007..

CNBC was announcing several new dot.com IPOs almost daily, and clients were close to rabid with wanting to own some of the next great dot.com company.  This craze and the bubble popping that followed left a lasting impression on many investors, and the NASDAQ Composite took 15 years to get back to the peak it hit in March 2000.

In 2005 and 2006, CNBC (often an outstanding contrarian indicator based on programming focus), spent more time highlighting the booming real estate market than it did discussing stocks and bonds.  Real estate agents from all over the country were touting their robust market and how prices were destined to keep going higher. 

As many of us know, this bubble bursting in housing subsequently triggered another downturn in asset prices, and shook the foundation of our financial system.  Ten years later, many are still feeling the effects.

So why rehash these great times in history?  Well as I sit here writing, CNBC is doing their umpteenth report on Bitcoin, and is scrolling the price of Bitcoin, and other cryptocurrencies throughout the day almost more often than they are highlighting the new highs on the major stock markets.  There are multiple talking heads expressing their enthusiasm about the cryptocurrency, and the debate about price, value and price point is happening almost every 15 minutes. 

Is this a bubble like we saw with the dot.com and housing markets?  Well that’s being debated as well on the TV and social media streams on the half-hour.  I’m also starting to get asked about how one gets access to Bitcoin and what is Bitcoin?  Quick aside – I’m getting asked HOW to get it before I’m asked WHAT it is..  That’s a little scary..

Don’t even get me started on trying to explain the other cryptocurrencies, or how you actually use it to pay for things.  This whole phenomenon around Bitcoin and the like has caught investor’s attention – regardless of truly understanding what it is, or how it works. 

Countless news stories and services offering the opportunity to get access to the different cryptocurrencies has exploded in recent days.  Junk mail inboxes are getting flooded with opportunities of a lifetime getting access to the always appreciating cryptocurrencies.  It’s a craze that is beginning to be comparable to those experienced in the past…  Did someone say “Tulip Fever”?

Okay – perhaps I am exaggerating the comparison to these other bubbles that I highlight.  Maybe there is more to this than is being hyped on the business networks.  In all fairness to the recent euphoria and constant price watch on Bitcoin, there does appear to be positives associated with what these cryptocurrencies support.  Notably with regard to blockchain technology.

Blockchain, an evolving technology that has been recognized in Silicon Valley for several years, is now catching Wall Street’s attention and imagination, thanks in part to the explosion in the price of Bitcoin.  Very basically stated (because I do not completely understand it myself) blockchain (according to Investopedia) is a digitized, decentralized, public ledger that manages and handles multiple cryptocurrencies transactions. 

You can read more of a description on Blockchain here: https://www.investopedia.com/terms/b/blockchain.asp

The idea generally, as I understand it, is to create a secure, open platform that links multiple and sequenced computers to digitally track records and transactions.  From a business perspective, I can see where a secure digital ledger system on a broader scale, that eliminates proprietary middle-men, can be extremely useful and potentially offer sizeable cost savings to companies and individuals. 

What I don’t understand is how that is reflected and valued in the price and role of Bitcoin or other cryptocurrencies within the blockchain technology.  I genuinely don’t completely understand it, so why would I invest in it, and why would I get caught up in the obsession with Bitcoin and its price?  It seems more like a gamble than an investment.

Like other times when prices seem to go up without making sense (some may argue this is also the case in the stock market – a different discussion), the price of Bitcoin can absolutely continue to rise.  I have absolutely no idea. 

My takeaway on the recent enthusiasm with Bitcoin, and like the benefits of the World Wide Web and e-commerce back in the mid-to-late 90’s, is there are certainly benefits and new opportunities created with the expansion of technology.  As we learned from the dot.com era there are winners that emerge.  When we come to understand the marketplace and landscape more, and things appear generally more rational, it becomes easier to make more reasonable and measured investment decisions. 

As for now, I’ll let CNBC continue to highlight the Bitcoin price every 15 minutes, and like 2000 and 2006, I’ll just sit back and be entertained by the hype and hoopla surrounding the latest and greatest investment opportunity.  In the meantime I’ll stick with the investment vehicles that I understand a bit better, and listen to the once infamous sock puppet sing “What Goes Up..”. 

Fond memories and lessons.  Well maybe not “fond”..

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The prominent underlying risk of using bitcoin as a medium of exchange is that is not authorized or regulated by any central bank. Bitcoin issuers are not registered with the SEC, and the bitcoin marketplace is currently unregulated. Bitcoin and other cryptocurrencies are a very speculative investment and involves a high degree of risk. Investors must have the financial ability, sophistication / experience and willingness to bear the risks of an investment, and a potential total loss of their investment. Please note securities that have been classified as Bitcoin-related cannot be purchased or deposited in Raymond James client accounts.  2017-064829