Personal website of Aurélien Vermylen

Crypto Money Madness

As my father correctly said a long time ago: “La bourse, c’est le temple des regrets”, which could be loosely translated as “the market is the temple of regret”. So we have another thing to regret:

Good return on investment...

Why don’t I own Ethereum… !?

As with every asset bubble, we are too late to join the party… Or are we? What about John McAfee who tweets that he will eat his d*** on national television if Bitcoin is not at 500k USD within 3 years?

But on the other hand… the total market capitalization of cryptocurrencies is around 100 billion USD now… Do we need that much money in the kind of black / shady economy?

But on the other hand: daily volume is 2 billion USD !!! Comparing to fiat (i.e. “normal” like EUR or USD) foreign exchanges and transactions, that’s huge compared to the money mass, so Bitcoin could rise still a lot!

But on the other hand, the Bitcoin network is riddled with problems of scalability, effectively controlled by efficient chinese miners, full of scams, and requires an extremely high understanding and knowledge of modern ICT to do without risk, so who will buy that crap…?

But on the other hand, states and governments are failing all over, public confidence is at an all-time low and it’s been ten years since a decent crisis, if we have a crisis now, surely Bitcoin will spike like crazy as an alternative to fiat and stock money!!

But on the other hand, if we have a systemic crisis, maybe governments will shut down the public, open internet, making it impossible for the Bitcoin to survive…

Well, there are many “other hands” in my story, but my gut says “buy Bitcoin” with an immense power today. Yes, even today at 2400 EUR for 1 single little Bitcoin, I want to own it. Like with all of my investments, I do it safely and slowly, never buying big chunks at the same time, but I’m going to allocate a non-negligible part of my assets in crypto-currencies.

People do not realize what modern cryptography means, but it basically means that you don’t need Feds or ECBs or SWIFTs any more, and the Draghis and Yellens of this world could get unemployed soon. We do not need a central authority to agree on relative power in society (i.e. money) any more. We can just use cryptocurrencies.

“It’s a bubble”

Mainstream and established media outlets specialized in financial services (especially those not invested in Bitcoin ^^) are quick to call this a financial bubble. These bubbles which typically, like the tulip bulb prices in 1637, collapse in a devastatory bear market and set the sector back for a few decades, should not be taken lightly indeed. They do arise in many hyped sectors, and are a danger for any investor.

However, if we look more closely at modern financial markets, it is hard to find an asset today that is not a bubble… Decades of “kick the can”, “re-inflate the market” financial policies have pushed prices of just about anything that cannot be industrially mass-produced to staggering heights. Sure inflation is supposedly low, because I can buy cheap TVs and chickens which are (without much ecological consideration btw) easily mass-produced industrially. But I can’t buy a nice house, even if I would indebt myself for half my lifetime, because real estate prices are through the roof. Even though I have one of the most sought-after university degrees in my country, I have to indebt myself for more than twenty years with a life-partner to get a kind of decent apartment today. Stock prices are the same, look at Apple for example nowadays. Its market cap is more than double the total market cap of cryptocurrencies today. Just one company! The problem is, people don’t know what a euro or a dollar is. They know they want money, they know it gives them power. But they don’t know that it’s just a trust system. That a euro fundamentally is nothing. It is just a record at their bank’s database, or a piece of hard-to-forge cotton, that is validated by a central authority (the ECB).

The advantage we have in cryptocurrencies, is that we can see the money mass. Hell, we can even see the source code that is used to perform the transactions, we can see the amounts on any address. Talk about transparency, it’s just built-in. If people would know how many euros or US dollars are in circulation today, injected in unsustainable debt massively as we speak, they would probably not find John McAfee so crazy to say that the bitcoin should be valued at 500k US dollars. There are only 16 million bitcoins to buy, if every person on the planet wanted to just allocate 1% of his wealth in cryptocurrencies, the price would probably spike to those levels…

Fear and euphoria

In every human, there are many personality aspects that can come out if he/she is put in a certain situation. One of these is the speculator. Since the dawn of trading and hoarding of goods or assets, humans want safety by owning a lot of goods and assets. The “apple for a rainy day”.

When first confronted to financial markets, this instinct usually makes the speculator in the human’s personality appear. Basic return compounding fallacies make people believe that they can become rich by just trading, and start doing so way too early, when they have no experience at all in financial markets.

The main problem with the speculator, is that he is driven by his feelings of euphoria and fear, and will make irrational decisions in the face of certain market events that will usually lower his returns on investment.

Rational trading

In trading, there are two common rookie mistakes that are a consequence of the fact that as humans, we naturally tend to think prices are mean-reverting

The first is “to catch a falling knife”. As a young professional, I remember making that mistake on a company called Bekaert (a Belgian steel-wire manufacturer). The stock had fallen from 90 € to about 50 €, and then lost again 10 % on one day to 44 €. I thought this stock could only go up from now on, and bought a significant amount of it. I knew barely anything about the stock, and it just happened that these price corrections were 1. perfectly justified, and 2. not even enough. The stock fell further to about 20-25 € and edged around there for years.

The second mistake is one I managed to avoid this time. I call it the “I missed the bus”-mistake, because I don’t know if it has a more common name. Basically, traders look at the Ethereum chart, and think: “well, it’s too late, I’ve missed the bus”. I was very close to making this mistake in the cryptocurrency sector. Indeed, a Bitcoin at 2400 € is very impressive, and more so as the Bitcoin rose from virtually zero. But I really think that this does not make it too late to invest. I really think there are still buses to grab (although not as profitable buses as 5 years ago ^^).