Monday, January 23, 2023

Coindesk - Hyping Crypto Since 2013!


Oh boy, Bitcoin is soaring!  I should buy some!

I mentioned many times before that bad actors online will hype stocks and other "investments" to encourage small investors to buy - thus driving up the price of a commodity they likely already own.  I saw this article online today and fell out of my chair laughing.  It has all the hallmarks of hype.

First, look at the graph.   The Y-axis has been selectively truncated from $20,750 to $22,500 to make it appear that there is a sudden "spike" in the price.  The X-axis shows time for part of one day - again, truncated.  By selectively choosing start and end points, you can create a graph that shows just about anything you want to imply.

Second, look at the accompanying text.  Bitcoin is "soaring" to a "four month high!"  Reading this,  you  might think the run on Bitcoin and other "crypto" is over.  Note also the nonsense language about "waiting for the Fed's next utterances" as if Bitcoin was somehow tied into American bond rates or, indeed, any other part of the economy.   Bitcoin, like all crypto, is simply subject to the laws of supply and demand - and articles like this are designed to increase demand, and thus drive up prices.

If you look at long-term trends, well, it ain't much of a spike.

If we look at the bigger picture, we see this "spike" is more of a "blip" and that people who paid $40,000 and above are still seriously underwater.  Bitcoin is not "soaring" but merely going up and down.  And that is the funniest part of the article - volatility of any commodity (if Bitcoin could be called that) or currency (ditto) or investment (ditto again) is not a good thing.  It means an investment is unstable and unpredictable and you could - and likely will - lose your shirt.

But hey, it's not a bug, it's a feature!  That seems to be the underlying message of this article, intentional or not.  Sadly, this "coindesk" site is little more than mindless cheerleading for "crypto".  I wrote before about the five myths of crypto.  Oddly enough, if you search for that article, you also get a hit for coinbase's seven myths of crypto which basically says quite the opposite of my article.  Their article is hilarious for its conclusory statements.  Crypto isn't a bubble... because it isn't!  Yet the second chart above clearly shows the bubble profile we all know and loathe.

And coinbase, unlike coindesk, is in the business of selling crypto to people.  So they are impartial as well.  Right?  Of course, coindesk is also impartial, too.  The owner owns bitpay which is a system for processing bitcoin transactions.  So they have no dog in the fight either!  Getting advice from either company is like asking a car dealer, "Is this a good car? Is this a good price?"  I suspect they'd say "yes" to both questions.

Similarly, coinbase claims that Bitcoin can be used as a currency.  While it is true that it can be used to transfer money across international borders, these transactions are mostly used for buying and selling guns, drugs, and people.  There are few "legitimate" uses for crypto, and few - if any - merchants are accepting it as payment for anything. The transaction costs involved (in the tens of dollars per transaction, regardless of size) mean that it really only makes sense for large transactions.  You aren't buying a happy meal with crypto.  Not only that, any merchant who does accept crypto immediately converts it to local currency as it is not a closed-loop system.

Worst of all is the volatility.  Suppose you could find an employer who paid you in crypto and a grocery store that accepted it?  You get paid on Friday afternoon and go off to the Bodega to spend your crypto cash and discover (as the first chart above shows) that the value of the crypto has changed by more than 5% in a matter of hours.  Worse yet, as the second chart shows, it could drop by half in the same amount of time.  But of course, that is just a fantasy - the actual amount of legitimate commerce performed using crypto as an exchange medium is a rounding error compared to those oh-so-awful "fiat currencies."

By the way, if you say "fiat currency" and "blockchain" in a conversation, people will think you are smart and chicks will dig you.  No lie!

Some other, more mature sites have a more balanced view on the whole cryptocurrency thing.  Brookings has a couple of articles on the subject that refute the nonsense that Coindesk and Coinbase are spewing.

So what's the point?  Not that this "coindesk" or "coinbase" are mindless cheerleaders for crypto, only that such mindless cheerleaders exist and people get snookered into bad investments by these articles online (or the shouting guy on teevee) or crappy articles in the financial press.  It would be illegal, of course, to manipulate a stock or bond price, but just doing "analysis" is perfectly fine - even if your analysis is shoddy.  Even,it appears, if you have a vested interest in the product.

Now, granted, you might say, "Well, Bob, these are obvious shills!  Anyone with half a brain could see though this whole smokescreen!"  And you are right about that.  It is akin to these SPAM SCAM e-mails you get, which have obvious typos in them.  Federel Expruss has a package waiting for you!  And fools will click on the link, never bothering to ask why FedEx can't spell the name of their company properly.  This acts as a filtering mechanism to screen out the skeptical - so the people who do click are prime, Grade-A, chump meat.

It is like the annoying man I met - who regaled me about how great crypto and gold were, while at the same time admitting he lost his "life's savings" of $30,000 (how pathetic for a 40-year-old) but of course, it was somehow the bank's fault.  You hear that a lot with these "crypto bros" - they are not just "investing" in crypto, but on a holy crusade to upend the banking system - all because they were charged a $35 overdraft fee.

It just makes no sense.  And 50 years ago, before the Internet existed, well, it was a lot harder to sell this nonsense as there was no way to instantly publish things worldwide, with the click of a mouse.  Today, a small operation of 11 people can put up a "newspaper" hyping one investment or another.

And online, often these look legitimate - to the uninformed and gullible.