Let me start by saying this – I wholeheartedly believe that blockchain, smart contracts, and decentralization are on the path towards ubiquity. The technology will likely revolutionize many facets of life as we know it and at least a handful of cryptocurrencies along with their associated technologies are here to stay. Which is a good thing for you and your friends unless your circle consists of a ruling oligarchy.
Additionally, I find it worthwhile to mention my crypto exposure, mainly so you don’t prematurely write me off as just another lunatic, anti-crypto naysayer. I currently have a small chunk of my net worth invested in 7 cryptocurrencies, along with small flyers in roughly 25 other cryptocurrencies that I believe have a noble goal and bright set of developers.
However, it doesn’t take a technical developer or crypto connoisseur to understand why Bitcoin and the rest of the crypto market will inevitably experience a period of massive chaos. The chaos may be confined solely to prices and valuations, but it will nonetheless surface. And to be extremely clear, I use the word chaos to the fullest extent of the definition.
Related Article: When do analysts expect to see Bitcoin hit $50,000?
So what is the simple fact for why Bitcoin and other cryptocurrencies are about to experience chaos?
I’ll guide you towards the answer…
Google stock currently trades on the NASDAQ for about $1050, which, in the most basic terms, should be approximately the present value of all future cash flows for the company.
Now go ahead and ask five or ten people that you see raving about and investing in Bitcoin and/or other cryptocurrencies the following question:
Bitcoin currently trades at about $6000, Ether at $300, Neo at $27, and Litecoin at $60:
At the time you invested in any of those, how did you figure out that your investment would be profitable? How did you value the coin?
The last question of “How did you value the coin?” is essential here. Because to know (or hope) you are making a profitable investment, you would have to arrive at a value for the coin that is higher than the price it currently trades at.
Now, I’m not hypothesizing that you will get zero coherent answers. I’ve asked these questions and have heard many people give logical methods of crypto valuations. Rather, I am CERTAIN that the majority of you will uncover the fact that most of your friends have absolutely no clue how to value cryptocurrencies, yet, due to FOMO, hype, or publicity, they invest anyway. I don’t want to use the word “bubble”, but if this doesn’t resemble the apotheosis of a market prime for chaos – then I don’t know what does.
Stay tuned for my next article where I will try to use basic game theory to hypothesize on the timing of the chaos I just unveiled.
As always, feel free to drop some comments below. I’m far from a financial expert and I’m more than happy to read differing opinions.