Investing in cryptocurrency is currently highly lucrative. People are just starting to learn about cryptocurrency. Your average person is probably wondering how they can possibly invest in Bitcoin. Coinbase can barely keep up with the demand and is constantly shutting down.
The hype is not without warrant. Blockchain is a new and innovative technology. Cryptocurrencies are emerging asset classes that are likely here to stay. Goldman is about to open a crypto trading desk. There are some real world problems that are currently unsolvable that blockchain can help solve. Issues such as financial payments, global asset tracking, and even refugee sponsorship.
Dotcom Bubble 2.0
However, the hype has some eerie parallels to the dot-com bubble. Yes, I’m sure you’ve heard about the bubbles before, but let me lay it out for you.
- Companies are collecting huge amounts of funding for a product that doesn’t exist.
- Companies are adding “blockchain” to their name and seeing their stock value increase 500%. Similar to how adding “.com” to your name would cause a marked increase in price
- People are mortgaging their houses to buy Bitcoin. A few days after, it promptly dropped 23%, likely leaving these people in an unfortunate financial position.
There is money to be made for now, but clearly, the hype is outpacing the actual adoption of the technology. It’s highly unlikely that Bitcoin will ever be more than a store of value. It will never become the global payments enabler that it was originally envisioned to be. I mean come on, it takes hours to transfer bitcoin and a $44 USD transaction fee to do it too.
Useless Tech, Ponzi Schemes, and Outright Fraud
If you look into the whole scene, there are several dubious schemes hovering around the whole space.
- Verge, a cryptocurrency with the 18th largest market cap has been the target of fake news and rumours. Someone spread a false rumour about its developers going MIA. The price dropped by more than half. If this was a stock, this would be considered to be securities fraud.
- USI-Tech is a “smart bitcoin exchange” that promises to multiply your bitcoin. All you have to do is refer people and you’ll generate up to 35% commissions on their profits. If that isn’t a Ponzi scheme, I’m not sure what is.
- There is a cryptocurrency called Tether that is supposed to be worth 1USD. When you cash it out, you get 1USD. They claim that there is a “real USD” for every Tether. There is currently 1.2 billion USD in Tether. The company behind it won’t name which bank it currently holds all this USD with and Wells Fargo has refused to be its bank. There is nothing stopping them from just issuing more Tether whenever they want, exchanging it for crypto, then cashing it out.
You can see what’s wrong with this picture.
It’s a shame. The underlying technology behind Bitcoin has a lot of potential. Scalable platforms such as Ethereum, Cardano, and NEO are organizations who are actively working on integrating blockchain into the businesses and the government. Without a doubt, blockchain and Bitcoin are here to stay.
But there are scams, Ponzi schemes, and irrational hype that will cause a lot of people to lose their shirts. Before you put any money in the space, make sure that you at least understand the risks and the underlying technology. If you don’t have the money to lose, forget your FOMO and sit on the sidelines. While you’re at it, get some popcorn and give the bros freaking out about how much money they’re making a long satisfying eyeroll. You’ll have a good chuckle at the spectacle that will happen when this all goes downhill. Cheers.