Why John Oliver Is Right About Cryptocurrencies

When HBO host John Oliver says people are buying digital coins “for no other reason than other people are buying them,” he pokes fun at the core of the cryptocurrency mania.

People are buying them thinking that if enough other people buy them they’ll be rich overnight. Sure, some investors have indeed made some money in Bitcoin and other cryptos, but the pendulum swings both ways.

Certainly not all digital coins are going to be winners. A lot of people will lose money betting on the wrong coin. How do you sort out the winners from the losers?

“I am not saying that every cryptocoin is a scam, just as I’m not saying that every blockchain company is bullshit,” Oliver said. “What I am saying is: In a speculative mania, it can be very hard to tell which companies are for real.”

Just as with any new stock, mutual fund or exchange-traded fund, no one possesses a reliable crystal ball. It’s difficult to call cryptos investments, because only a handful of them will make money. You’re spinning the roulette wheel and hope you pick the right one.

“The point is: If you choose to invest in the cryptocurrency space, just know that you’re not investing, you’re gambling,” Oliver advises. “Which is fine, but you should know that is what you’re doing and prices do go down,” he said.

Want even more insight into the casino mentality behind cryptos? I recommend a recent piece by Nassim Nicholas Talib, an insightful writer on finance and author of The Black Swan. Although Talib is a realist when it comes to speculative investing, he doesn’t pull punches on the unknowns of cryptocurrencies.

Like myself, Talib is excited about the possibilities of blockchain, the software behind cryptos. It may beget an entirely new global payment system that doesn’t rely upon banks for intermediation. But there will be lots of bumps in the road along the way.

“It (Bitcoin) may fail; but then it will be easily reinvented as we now know how it works,” Talib writes in Medium. “In its present state, it may not be convenient for transactions, not good enough to buy your decaffeinated espresso macchiato at your local virtue-signaling coffee chain. It may be too volatile to be a currency, for now.”

Is there a saving grace in investing in Bitcoin – or any other crypto for that matter? I would suggest that you keep your eye on the man behind the curtain, that is, watch leading developers of blockchain. Which companies are ahead of the pack? Which will maintain their lead in the market?

Past is again prologue when it comes to cryptocurrency investments. Most of the new ecommerce and Internet companies failed. Remember Pets.com?

I would keep my powder dry and wait until low-cost exchange-traded funds come along that allow you to invest in a basket of cryptos and blockchain companies.