Opinion: cryptocurrencies have the promise, peril, stupidity, brilliance and excitement of the first dotcom era
My first job in finance was in 1999. It was during the dotcom bubble and it was a time of mania. New ideas tumbled forth on a daily basis, and all were treated with reverence.
I remember siting up late at night one time learning web design to launch an ill-fated website called teddyinabox.com selling, yep, teddy bears in a box. The bears were sourced in large numbers from a Naas Road warehouse and laboriously carried home on the bus. The enterprise sold a lifetime grand total of one teddy bear; to a co-worker who clearly felt sorry for me. But when I was on that bus home from the warehouse surrounded by teddy bears, I was looking at everyone else thinking ‘I’ll send ye a postcard when I’ve made it’.
That’s the nature of great new ideas: they grasp you tight, set you dreaming, and maybe sometimes stop you thinking straight. Of course, not everything dotcom was teddyinabox. Most of the big stars of the tech world have their genesis in that initial dotcom hype. There was value there overall, even if nearly every individual idea was flawed.
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From RTÉ Radio 1’s The Business, Anne Hayden from the Institute of Investing and Financial Trading on the rollercoaster world of cryptocurrencies
I think that’s the best way to consider cryptocurrencies. They have the promise, the peril, the stupidity, the brilliance and the excitement of the first dotcom era. Some are literally teddyinabox enterprises (anyone can set up a cryptocurrency overnight). Loads are scams, some are mad ideas and most are weak copies of better ideas. Yet the overall market is worth €1.3 trillion because some of the ideas behind cryptos, if they work, will reshape the world.
I research the investment side of cryptocurrencies and new technologies in finance. Here, I show a way to think about cryptocurrencies as an investment. It’s most definitely not investment advice; no sane person would give investment advice on a market that regularly rises and falls by 10% in a day.
Cryptocurrencies that will become completely worthless
Money coins such as Bitcoin, Dogecoin and Ripple are worthless, thrash, chuck ’em in the bin. These are ‘coins’ (as cryptocurrencies are often referred to) that want to be the new money. The promise is that they will replace national currencies. But why would you swap your nice steady euros for a currency that can change 20% in value in a moment? You wouldn’t. Nobody would. It’s not going to get better over time either: Bitcoin is already the size of a large country’s currency, and still regularly changes value by huge amounts.
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From RTÉ Radio 1’s Today with Claire Byrne, Sean Keyes from The Currency on Dogecoin
To this group, I will add stable coins, with a small caveat. Stable coins like Tether and USD Coin mimic the value of a real currency, like the US dollar in these two cases. They are huge cryptocurrencies, and incredibly useful in terms of moving money around the crypto world, but also ‘worthless’ from an investment perspective as its no different to simply investing in US dollars / cash.
Cryptocurrencies that are interesting but dubious
Privacy coins like Monero and Dash allow you to hide your ownership of the coin, in a way that a coin like Bitcoin doesn’t. This is handy if you are a criminal, but there are a range of legitimate reasons why privacy might be sought. The reward is the fees earned on the huge pool of illegitimate money that floats around the world. Leaving aside the obvious ethical issues, the odds are high of a government take-down of any privacy coin that becomes successful.
I’m a huge fan of NFTs (non-fungible tokens), which are ways of owning digital assets, such as assets in virtual worlds. There is great potential in these digital assets and a lot of NFT coins like Mana, Axie Infinity, Alien Worlds have sprung up. These aren’t themselves NFTs, but do allow you to buy NFTs. These seem to me like the modern equivalent of a gift voucher, and equally pointless right now, even if there might be some value in the future.
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From RTÉ Lyric FM’s Classic Drive’s Culture File, Virginia Tech’s Aisling Kelliher, painter Hughie Donoghue, NCAD’s Rachel O’Dwyer and crypto-art pioneer Ruth Catlow discuss is NFTs are a wow or a WTF?
Cryptocurrencies with great business ideas
Infrastructure coins such as Ethereum, Polkadot and Polygon are, to my mind, the core value proposition of the entire crypto movement. These coins allow applications to run on their blockchain networks in return for transaction fees. It means that everything can be registered on a blockchain – property, art, products – creating strong trust benefits which are highly valuable in trade. Ethereum is the current runaway winner, but not really designed to scale to large transaction volume.
Market coins like Uniswap and Pancakeswap are issued by markets that allow you to trade one coin for another, or earn value from coins you own, sometimes referred to as decentralised finance (or DeFi). The value here is through commissions charged flowing to coin holders.
The key question for any investment is does the business model make sense? Or, if you like, who’s going to buy the teddy bears?
Chainlink and The Graph are examples of data coins which propose to be the data link that underpins the blockchain. Let’s say you have a blockchain-registered contract that pays out compensation if it rains on a particular day. The data coins are commissioned to provide verified data on whether it rained and allow automatic completion of the contract. There is a clear path to value here, as seem from the financial markets, where reliable data is highly valued. It’s just hard to know which data provider will win.
In the interest of transparency, I’m personally invested in Polkadot, Chainlink and The Graph, but they could easily lose all their value tomorrow. My main point is that cryptos get interesting once we move beyond Bitcoin, which takes all the headlines. However, the key question for any investment is: does the business model make sense? Or, if you like, who’s going to buy the teddy bears?
The views expressed here are those of the author and do not represent or reflect the views of RTÉ