End of the Road...for Crypto?

Do cryptocurrencies have a good chance to rebound? About as good as a short man rebounding in the NBA.

It was mid-December 2017, I sat at a retirement luncheon with some old coworkers when I heard it and felt confident that the end was near. “You should buy litecoin (LTC)”, one old coworker urged another. With little explanation of the functionality of the coin or why it seemed like a wise investment, the latter opened an account in coinbase and made the purchase. All he knew is that LTC had hit new highs and had been on an upward trajectory for the past 5 weeks. He was already down 10% before the luncheon had ended!

I suppose I could have stepped in to discouraged the purchase. However, prior to the purchase, I had conveyed that I had recently created a new company that offered financial consulting services and since they didn’t care to request my input, there was no need for me to be involved. Petty? Maybe. But knowledge is power and the slightest support for my new company could have saved him that 10%. Who knows how long he ended up staying or how much he eventually lost. What I do know is that around that time, LTC was valued at about $360 per coin and as of the time of this writing, it is valued at about $115 per coin.

Had I been consulted, I would have explained to him that the creator of LTC had recently issued an ominous tweet about the value of the coin dropping 90% like it had done in previous years. Or I could have mentioned that there were about 1400 other cryptocurrencies (cc) in play, several of which performed the same function as LTC. Not only did they perform similar functions, they did it faster and cheaper. Perhaps, I would have advised that the cryptocurrency craze is driven primarily by speculation and fear of missing out.

Let me explain, I wasn’t staunchly opposed to cryptocurrency at the time, I had actually more than quintupled my investment in LTC within the 2 month period leading up to this fateful date. However, my ignorance of the cc market had subsided and I had a greater understanding of cryptocurrencies. I pulled my initial investment as well as 75% of the profits near the time that LTC peaked. Why? I was already up more than 7 fold, anything extra would be icing on the cake. Charlie Lee’s ominous tweet helped out as well. The fact that he reportedly sold all of his coins within the following week made me feel reassured with my decision. I encouraged some clients and friends to follow suit but they were caught in the craze. “To the moon”, “HODL” or the “Bitcoin (BTC) will reach $100K in 2018” is the response that I’d receive. By the way, BTC is under $7K per coin at the time of this writing.

Why do I discourage investing in cryptocurrencies? They are too volatile. I recently had a discussion with a childhood friend who received his MBA from Harvard and he disagreed with me. The following was my sentiment. If I understand things correctly, cryptos were supposed to be some sort of a decentralized peer to peer (P2P) currency. And perhaps they were effective at that once upon a time. However, their current volatility renders them too risky as a medium of exchange. Let’s assume I sell you a car for $10K worth of your favorite cryptocurrency. Within minutes, the value of that cryptocurrency could drop as much as 20%. That would mean I suffered a $2K loss. I doubt that is a risk that most reasonable people are willing to take.

He countered that the cc market still served a purpose in the criminal underworld. Though I agree with his sentiment, I doubt that 10% to 20% losses in the matter of moments is something that anybody is willing to risk. Yes, I know that instantly cashing out and leaving the funds in your wallet would remedy this issue, and perhaps it would be less taxing than laundering money through other means. However, I still feel that the cc market is way too volatile. You add the government intervention in China, India, South Korea and the U.S, and cc’s may just be a thing of the past. Holding on to them may be akin to holding onto hopes that an ex will return after they have already moved on with their life.

I’ll be fair, I have a pocket full of alt-coins which I haven’t sold because at this point, it’s damn near pointless to try to walk away with the few hundred dollars that they’re collectively valued at. I won’t say that I’m HODL’ing, but I will say that I’ll treat the lost profits like that lost high school sweetheart. As the monologue in the song End of the Road by Boys to Men goes, “Girl, I'm here for you. All those times at night when you just hurt me and just ran out with that other fella. Baby I knew about it, I just didn't care. You just don't understand how much I love, do you? I'm here for you.” Now, we just have to wait and see if she’ll return to my loving arms.