This is a follow-up blog to the December 8 report:
Watching a so-called investment zoom 5x or 10x or more in just weeks is a potentially extremely dangerous phenomenon.
In capital markets, one’s emotions can become intense. Like any emotional roller coaster in life, the fantastic highs are almost always followed by sickening lows. The question is at what point could severe depression turn to suicide.
Even in this blog about capital markets and social equity, we remember a few former commentators – just people like you and me — who killed themselves. That reality is always on my mind.
Some of us recognize the pitfalls and take steps to avoid the downside. While working at Dominion Securities Investment Management 35 years ago I recall one of my clients taught me the importance of understanding that a coin has two sides. This client had wanted to explore the notion of put and call options and knew I was somewhat of an expert, so he set aside $25,000 of his account for me to make some appropriate transactions. But, after about three days, when these instruments had grown to $75,000, he called to direct me to shut it down and move the capital back to his main account. He explained that being a psychiatrist, he had an understanding of the emotional boundaries of humans, and just watching his account during those few days had exceeded his.
That experience always stayed with me. I learned that we all have emotional limits, but only some of us recognize our own.
My point obviously is that hundreds of thousands of crypto players have not seen the downside yet, but they will. While I do believe that most crypto buyers have limited their exposure, I wonder how many of the losers-to-be will remain emotionally stable and how many will kill themselves?
My client in 1982 knew which clinical signs to be aware of. That is an individual thing and I’m not a doctor. But as an expert in securities trading, I can tell you what signs to look for that the crypto roller coaster has reached its peak and is likely heading for the bottom so that you might avoid a depressing and possibly fatal experience.
First, understand that by its very nature capital markets can be emotionally abusive. Volatility is what we require. Chaos is entirely a different matter. It’s up to each of us to seek the emotional balance we need to remain in control, to stay in the wealth management game as an effective decision-maker.
As well, when good things happen, and our capital accounts are growing, we need to recognize that it may be the market action and not the result of our being the smartest in the room. And, when bad things happen as they will, it’s up to us to take personal responsibility and not to blame others like central banks and governments and Humongous Bank & Broker.
Just because I complain does not mean I blame those organizations for my losses and for whatever else goes wrong in my life. The fact is we need them, just that we need them to do a better job.
Finally, to manage risk, we need to look for signs that bad things are likely to happen going forward — as they always do in capital markets. With the whole subject of cryptocurrency, if you care to look, it’s not difficult to be aware of a rapidly changing marketplace. That’s good; but not all good. What’s good today can and will be bad sometime in the future.
Cryptocurrencies are not currencies; they are prices. There are a much greater number of cryptocurrencies than most people know. CoinMarketCap.com says that as of November 27 2017 there were over 1324 and counting.
All of these instruments are just prices that insiders created and are exploiting by way of the Greater Fool Theory. If you disagree, then you must think you are smarter than Dimon, Dalio, Bogle, Stiglitz, Greenspan and so many other really smart people. Don’t go there.
Given the reality in markets that for whatever reason a price that goes up can and will come down, you should focus on the price action of the most extreme speculations. For you, that’s maybe done by reviewing the charts of Bitcoin, Ethereum, Bitcoin Cash, Ripple and Litcoin and the like, for which you can apply the usual technical indicators. I don’t do that because rightly or wrongly I think the big money behind these “coins” – the price drivers if you will – is a syndicate (or many syndicates) of gangsters who are using the public to launder proceeds of crime. In many other cases, they are simply fraudulent promotions bought by gullible people.
For now, the reprobates control the prices of the unregulated cryptocurrency instruments by methods like wash trading and media manipulation. And, if they were smart enough to set up these coins, they are smart enough to hack/steal them. They are probably also smart enough to avoid prosecution, at least many of them are for now.
What I recommend, therefore, is the close monitoring of regulated public companies that deal with crypto, companies like Oversock.com (OSTK), BTL Group (BTL.V), Bitcoin Investment Trust (GBTC), Marathon Patent Corp (MARA), Riot Blockchain (RIOT) and the like. These companies are required by law to fully disclose facts about their operations, finances and controlling shareholders and managers.
For the most part, due to SEC oversight, legitimate and knowledgeable investors are involved in almost all public companies. When these real investors reach a point that enough is enough in terms of mania-driven gains, they sell. If enough of them sell, the bullish price trend changes to a bearish price trend. That’s when you need to sell.
You will be amazed that when sellers become pervasive, buyers disappear. Prices that had shot higher will plunge even faster.
Interestingly, in the past four weeks, investors in OSTK, MARA and RIOT have already endured losses of Bear market proportions. It’s just a matter of time before BTL.V and GBTC hit the skids.
In addition to monitoring price action, there are other ongoing financial events you need to follow.
Monitor the filings of crypto-involved public companies who report quarterly to the SEC because they must disclose litigation, risks, and so forth. In fact, the SEC is already getting very much involved in the crypto market. As the public complains, as they always do when losing money, fraudulent newsletter and corporate promotions will be stopped, and the fines used to support the SEC budget.
As well, governments will tax pretty much whatever and whenever they can. They need the money.
This month, the IRS demanded that crypto exchange Coinbase report the details of the 14,355 users who had moved $20,000 or more through the Coinbase platform. This action, I believe, is merely the beginning of IRS investigations; and ultimately all users, including companies that accept cryptocurrency in commercial transactions, will be required to report. So much for the underlying secrecy concept. Moreover, once governments outlaw crypto as a form of currency, then I expect a spate of lawsuits against the companies that accept them.
Watch for stories of crypto theft. This week, NiceHash, the largest Bitcoin mining marketplace, was hacked, which resulted in at least 4,700 Bitcoins stolen, at that point worth over $57 million.
We know that organized crime is involved, a fact that Interpol and G-20 governments and central banks will try to crush asap. Presently Bulgaria has seized about $3.7 billion in bitcoin valued at current prices, which is an astounding sum that will open the eyes of law enforcement around the world.
What happens if the Bulgarian authorities do not destroy these coins, but sell them instead? This is an interesting question; however, the bottom line is that regulators of the real economy will not permit the underworld to be in control.
Just because I believe that cryptocurrency is a fraud does not mean that you agree. But you ought to agree that, if you happen to be involved, you need to protect yourself from the downside of cryptomania — at least to the extent you are involved.
As I wrote about the real estate fraud I suspected was occurring in 2006, and later discovered to be the ugly truth, “books will be written.” Take steps today to avoid being one of those people the media will be writing about.
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