I’ve always thought the word ‘crypto’ should have the letter ‘a’, somewhere and that Bitcoin should begin with a ‘sh’ sound. I’ve been asked many times what I thought about cryptocurrencies and at first, I said that I didn’t understand them. Now, after reading reams and listening to crypto experts, I can confidently say that I don’t understand them. None of it makes any sense to me which is no disgrace as I subscribe to Warren Buffett’s maxim that one should invest within a circle of competence. It’s not how wide the circle is that matters, it’s all about how well you define it.
Not that I believe the word ‘invest’ is really appropriate here. To my eyes, it’s as far away from the concept of investing as it’s possible to get. People prattle about how much electricity it takes to ‘mine’ it, or there’s a finite number of ‘coins’ in existence but neither concept confers any degree of intrinsic value. It takes a certain amount of electricity to mine (I prefer the word ‘boil’) my kettle but so what? Human nature, being what it is, can be responsible for some pretty stupid things. During the 17th century Dutch tulip mania, an ‘investor’ swapped his Amsterdam town house for 2 tulip bulbs (imagine Mr Van Dyke explaining that to Mrs Van Dyke after she’d returned from a few days at her mother’s?), so idiotic speculation is nothing new. Buffett’s right-hand man, Charlie Munger, Vice Chairman of Berkshire Hathaway, commented earlier this year that Bitcoin should have been banned immediately and he admired the Chinese for doing so. He went on to describe crypto as being “like some venereal disease”.
All of which, if you will allow me the liberty of a small detour, reminds me of the time I twigged the etymology of the word ‘venereal’ which derives from the name ‘Venus’. I was in the main market of Makhachkala, Dagestan, in Russia’s restive North Caucasus. The entrances were guarded by police armed with AK-47s and our party had been told to ask no questions about sturgeon (the fish ……. I got the distinct impression the locals had little interest in Scottish nationalism) or caviar. Being impoverished and on the Caspian Sea, something told me fishing quotas weren’t as rigorously enforced as they might have been.
Anyhow, half an hour later, as we waited at the rendezvous point for our guide, some of the stall holders were curious about us and wondered what we were doing there; Makhachkala had long been dropped from the Tui brochure. My Russian is rudimentary but as I was the only one capable of speaking any, I got the job of translating. The next thing, a plump lady in a stained butcher’s apron appeared, speaking fluent English. She said “I am Venera, as in Venus, the Roman goddess of love.” Even allowing for the cunning disguise of the apron, there was nothing to suggest I’d stumbled upon the 4th member of Bananarama, whose video for their version of ‘Venus’ instantly came to mind.
It was at this juncture she appeared to be admonished by a gentleman she introduced to me as her brother. He wasn’t speaking Russian or English but as Dagestan has 34 native languages, there were plenty more to go at. He didn’t seem very happy at all but once he’d left she nonchalantly wrote her mobile number on the corner of a paper bag (pure class …….) in full view of my fellow travellers and suggested I call later. I could be wrong but I suspect I wasn’t the first carrier of hard currency she’d handed her number to. Would her (armed?) brother and some of his mates be an unwelcome addition to any assignation? Did she have a Bananaramaesque devil costume? Or, would it just be the filthy apron? Alas, I’ll never know but I often think of Venera, usually when Mrs Newsome asks me to pick up a nice bit of sirloin from the butchers. Anyway, I digress …….
The recent demise of Crypto exchange, FTX, has garnered plenty of attention. Run by founder, 30 year old Sam Bankman-Fried, it was valued at $32bn earlier this year in a private funding round. Today, it’s worthless. Plenty of major investors were on board here including BlackRock and the Ontario Teachers Pension Plan. I read an account of how Bankman-Fried gave a presentation to prospective investors while simultaneously playing a video game. In another pitch, he was asked to put a PowerPoint presentation together which he knocked up in a couple of hours. There were, apparently, no headings, no formatting and a plethora of fonts. I would argue such behaviour, at the very least, suggested a personality defect that rendered Bankman-Fried uninvestable. Another investor said that Bankman-Fried was so averse to any outside input that those suggesting a more experienced executive ran the company believed they were likely to be barred from future funding rounds; all very Bernie Madoff.
As I write, another crypto exchange, BlockFi, has filed for Chapter 11 bankruptcy protection in the U.S. Ironically, BlockFi had received a rescue approach from FTX earlier this year, resulting in the latter advancing a $275m loan. Imagine being rescued by FTX; that’s like being rescued by the Titanic. Bloomberg reports that creditors of an outfit called Genesis are also in restructuring talks to try and prevent the crypto brokerage from filing for bankruptcy. Good luck; I’ve seen a few of these films now and reckon I can guess the ending. Speculating on this junk makes playing Foxy Bingo look like a sensible investment proposition.
I bet there’ll be plenty more of this nonsense over the next couple of years. Of course, there are people who can rightly say they’ve made money on crypto but for a long time Bernie Madoff made money for investors …. until he didn’t and Dutch folks made money on tulips …. until they didn’t. Munger might be 99 years old but his description of crypto is, like his investing, bang on. It’s much more sensible to invest in something that has a fair chance of a pleasing return because the premise has been tested, than simply hoping for the infinitesimal chance of a spectacular one. Or, to put it another way, maybe it’s a waste of time hoping for Bananarama when you’ve got Venera’s number in your hand? If only I could remember where I put it.
The value of investments and any income from them can go down as well as up and you may not get back the amount originally invested.
This material should not be considered as advice or an investment recommendation. Investors should seek advice from an authorised financial adviser prior to making investment decisions.
John Newsome can be contacted on 01423 705123 or john.newsome@williams-im.com. Williams Investment Management LLP is authorised and regulated by the Financial Conduct Authority.
