Statements and Thoughts about Cryptocurrencies

• Eight years after the introduction of Bitcoin, there are now over 900 cryptocurrencies and their prices are at all-time highs.
• Richard Schiller categorizes bubbles as an underlying story driving the market forward, as opposed to the fundamentals of the assets. Cryptocurrencies are riding on a narrative of economic empowerment and freedom.
• Despite the widespread attention that cryptocurrency receive, many of the actors involved in the market are not fully informed. Debate tends to turn to hype and naive investors are buying crypto-assets without fully understanding what they are.
• Banks spend 73% of the market capitalization of Bitcoin each year on regulatory compliance. Crypto-assets are currently unregulated and free of these restrictions. As such, the market has thrived but also developed some bad habits.
• Regulators cannot necessarily shut down cryptocurrencies, but they can restrict liquidity into them from fiat currencies and hamper their growth. The global derivatives market, for example, is worth $1.2 quadrillion, dwarfing Bitcoin’s $100 billion market cap.

Market manipulations in crypto markets are undermining their credibility.

• Due to low liquidity, no regulation, and a lack of clear understanding of the markets, pump and dumps are widespread in crypto markets. This is where a speculator can artificially sell while concurrently buying their own currency, wait for the market to rise, and then dump their holdings.
• Frontrunning is also a common occurrence in ICOs, where early investors—who are used to show initial faith in the enterprise—buy discounted tokens before immediately selling them on.

As with historic bubbles, scams are exploiting naive investors.