EC HH Where Money Goes To Die

It is often a wise thing to look around and see where people are doing that is nuts. Often it is obvious in advance. In the past, the two most obvious were the dot-com bubble and the housing bubble. Today, we have two unrelated pockets of nuttiness, neither of which is as big: cryptocurrencies and shorting volatility.

I have often said that that lure of free money brings out the worst economic behavior in people. That goes double when people see others who they deem less competent than themselves seemingly making lots of money when they are not.

Photo Credit: eFile989

I’ve written about Bitcoin before. It has three main weaknesses:

  • No intrinsic value — can’t be used of themselves to produce something else.
  • Cannot be used to settle all debts, public and private
  • Less secure than insured bank deposits

In an economic world where everything is relative in a sense — things only have value because people want them, some might argue that cryptocurrencies have value because some people want them. That’s fine, sort of. But how many people, and are there alternative uses that transcend exchange? Even in exchange, how legally broad is the economic net for required exchangeability? Only legal tender satisfies that.

That there may be some scarcity value for some cryptocurrencies puts them in the same class as some Beanie Babies. At least the Beanie Babies have the alternative use for kids to play with, even though it ruins the collectibility. (We actually had a moderately rare one, but didn’t know it and our kids happily played with it. Isn’t that wonderful? How much is the happiness of a kid worth?)

I commented in my Bitcoin article that it was like Penny Stocks, and that’s even more true with all of the promoters touting their own little cryptocurrencies. The promoters get the benefit, and those who speculate early in the boom, and the losers are those fools who get there late.

There’s a decent public policy argument for delisting penny stocks with no real business behind them; things that are worth nothing are the easiest things to spin tales about. Remember that absurd is like infinity. If any positive value is absurd, so is the value at two, five, ten, and one hundred times that level.

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