Bitcoin, the world’s leading cryptocurrency, has had a tumultuous week. The miners’ disagreement over the rules turned into a game of chicken – and it ended in an almighty crash. Now we have two separate currencies – where once there was only one.

Bitcoin Cash is born

Bitcoin Cash has the same history as bitcoin – the same blockchain. But it has now split off, like a dividing bacterium. However, it’s most definitely the junior partner in this arrangement. Furthermore, it’s frankly a very different beast – and it’s now based on some very different technology. Larger block sizes should mean faster transactions – but with a more complex clearing network to maintain, it’s likely to result in the job being concentrated in the hands of fewer miners. That means Bitcoin Cash may bear more resemblance to traditional (fiat) currencies, in how it can be used. You’re unlikely to own a bank, but you’ll likely find it performs reasonably reliably when you try to use one. It’s probably going to be much the same with Bitcoin Cash.

 

Of course bitcoin is not the only cryptocurrency. In fact, there are over 1,000 of them. We covered CORION’s ICO last week, and we received some very thoughtful feedback from one reader. I thought it deserved an airing. (We edit letters for clarity.)

From: Dimitri

Subject: Corion ICO

I personally think that ICOs should be viewed in the same way as IPOs (SNAP INC, as a case in point). They’re an extremely speculative method of raising startup capital. 99% of the time there is ONLY one set of winners, the founders and their ‘inner circle’ including their over-paid legal and banking counsel. There are statistically few exceptions, I’m sure.

CORION has a brilliant idea: interest, dividends and currency pegging essentially. I believe most banks, sovereign nations and companies use the ideas in one form or another.

It’s all about basic economics now as ever, the winning network(s), economies of scale, and mass adoption. The innovation is incomplete without mass adoption decided by the adopters of that network – ask Sony Betamax, Yahoo, and so many other innovative initiatives caught on the wrong side of the mass adoption marketing war. Obviously the marketing genius entity ‘always’ wins. So far, I’m not seeing any marketing-driven genius involved in the crypto space, merely a bunch of clever techies peddling their intelligent wares. I work in IT, have for decades, and recognise that technical genius doesn’t win the day, ask Novell about their experience with Microsoft. Microsoft was the winning marketing genius, with often sub-standard or average technologies to sell.

Good luck to CORION, but this ICO, is like all others, one huge speculative gamble, and should be treated respectfully as such via disciplined portfolio allocation under the banner ‘SPECULATIVE’ 99% chance of loss.

In cryptocurrency ICOs huge money has been made (bitcoin & Ethereum – with numerous other fly-by-nights basking in the light of those success stories). That’s phase 1 complete.

Now it’s about network maturity, mass adoption, and the opportunities involved with that evolution. That’s Phase 2.

Therefore my conclusion is that investor advisors, and publishers & their readers (myself included) are all behind the curve on this one – yet again.

Do I believe there’s a fortune to be made? Yes, by dumb luck most of the time, for your subscribers. I see no genius involved here, other than the founders and idea owners themselves. As long as you’re on the outside of the inner circle of that idea, you stand a low chance of success. I therefore think what’s needed is visibility of how close to the inner circle one is, when ‘investing’.

Dmitri expressed some fairly strong opinions, there. I’d take issue with certain parts of this argument – particularly that the founders are those who ultimately profit. I’m not sure that applies to the main cryptos these days – which have been built on large industries, not by a few chancers. My view remains that those who plan their market entry correctly, after observing the fundamentals, will be the ones who win out.

Cryptocurrency investments are not for the faint-hearted – but they can be a source of absolutely astonishing profits. Even joke currencies like Dogecoin have proven to be fantastically successful investments – rising 935% in a week!

But of course – as Dmitri points out above – this market is full of scams and charlatans. You need to know how to avoid the unhelpful noise, and the con-merchants, if you’re to make sense of investing in this wild-west world.

Sam Volkering, our own crypto expert is clear on the risks – saying “90% of all ICOs are utter rubbish”. If you want to get some clear-ed details on how to invest sensibly in this market, get the full story from Sam here.

Let us know what you think of cryptos: andrew@southbankresearch.com.

Best,

Andrew Lockley
Exponential Investor