Cryptos And The Stock Market

by Stabu

I actually own a few Bitcoin that I got for about $10 end of 2012. I accepted those reluctantly as a form of payment for minor debt. I’ve actively followed the crypto currency market since, but never purchased more, because the market has always felt overvalued. Fundamentally I object the anti-social way most cryptos are designed that majorly benefits early adopters. I also suspect that cryptos themselves will be less successful in the long-run for a number of reasons including a relatively slow adoption rate compared to other recent phenomenon such as the rise of Facebook. While crypto networks are pretty much undefeatable, cryptos come with other downsides, primarily the need to convert them into real money (e.g. dollars or pounds). If governments want to ban these things the only thing they have to do is to shut down a handful of exchanges. Pure information businesses with online only presence can work fine with cryptos, but businesses in the real world operate with supply chains that rely on real money in the end. Government fiat is still fundamentally based on the government’s assets, most significantly its ability to tax, while the value of cryptos is almost entirely based on the size of the crypto network. If cryptos catch on in a major way I suspect that they will be banned due to similar reasons authorities are waging a war on cash and on gold, and the reasons for banning cryptos are even stronger than for cash or gold, since conducting illegal activities with cryptos is far easier. My speculation is that the main reason this hasn’t happened yet is because governments would want to form their own cryptos in order to virtually seal their destruction of human liberty. All this being said, I’m bullish on the blockchain technology with it’s abilities for e.g. triple bookkeeping, but I believe it’s future is in private rather than public ledgers.
The problem with the stock market is that the PE valuations are simply insanely high and those valuations have gone up for quite a long time. Stock markets around the world are trading more in unison than ever before and hence it’s almost pointless to try to do any international diversification. I’ve found several natural resource companies, a few utilities, and a few consumer staples businesses that have fair valuation. The reason I’m not investing in them is because they are still part of a stock market and if any form of accident would ever occur, we could see these fair valuations to still halve overnight. The difference between a stock that’s lost 80% and a stock that’s lost 90% of it’s value is that the stock that’s lost 90% first lost 80% and then an additional 50% of it’s value. Therefore the only “safe” investments are small privately held businesses you can physically visit that have solid foundations and very few connections with anything financial (debt included).
So why not simply ride the stock market and cryptos higher? Well, even if we assume that this thing will go on forever, let’s say, doubling every single year starting 2018, continuing on 2019, then 2020 etc. etc. without a single crash, sooner or later – the financial markets will uncouple from reality. The longer this goes on and the more insane all valuations become, the larger and faster the uncoupling will likely be. I would not be surprised – but I would be very socked – if I woke up tomorrow to find out that land and every item in the grocery store cost 10 times as much as it did the night before. I’m not even sure if such a single uncoupling event could be characterized as a hyperinflation, since the revaluation happened literately overnight and become to a halt soon thereafter. The process is fairly similar to what would happen when a country with fixed exchange rates suddenly decides to devalue the fixed exchange rate by, in this case, 90%.