Bubble or no, cryptocurrencies aren’t going away any time soon

Bitcoin cryptocurrency exchange in Prague © Getty Images
It’s vital that you familiarise yourself with cryptocurrencies

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Bitcoin looks like it’s off to the races again.

From the mid-$6,000s less than a fortnight ago, it’s now in the mid-$9,000s as I write.

Has the move got legs or is it a false dawn? Time to jump on board if you haven’t already?

Today we consider all.

The huge communication problem in crypto

The sober investor might consider a 45% move in a couple of weeks a little racy for his portfolio. Well, how about 60% in one day?

Bitcoin is one of the steady ships in the volatile world of cryptocurrencies. It’s for greenhorns and old-timers. Get with the game, Grandad! 10% swings on a daily basis aren’t enough for this new breed of financial trader. They want that on a five-minute chart.

I was scanning through the lesser known coins yesterday, trying to see if this current move is sector-wide (and it is by the way), when I stumbled across Mixin.

What’s Mixin? I’d never even heard of it. What does it do? A quick visit to its website explains all. Not!

“A TEE powered BFT-DAG network”, it says, “that connects all existing blockchains with unlimited throughput.” Heaven knows what that means. (And a few techies as well, probably.) I’ve no idea.

You can’t argue with the stats though. It was up 60% yesterday and now has a market cap of $412,084,605. Over $4.5m of coins traded over the last 24 hours.

I did a quick search on Twitter to see if I could find out more. Mixin has 1,609 followers. I’ve got more followers than Mixin! I’m not doing badly in my life, I’d say (though there’s plenty of room for improvement) but I don’t have a market cap of over $400m.

Mixin is, as far as I can make out, a technology for distributed cross-chain transactions: that is, I presume, to transact from one blockchain to another. It claims to be faster than any existing blockchain network (that’s quite something if true). Its main use is end-to-end encrypted messaging, and mobile and PIN identity.

I think I’ve got that right, but I really couldn’t tell you for sure. Gosh this space is bad at communication! From the word go it’s been populated by obsessive coders, who are incapable of communicating basic stuff to lay people.

What’s bitcoin? It’s an alternative system of money for the internet. That’s all you need to say and people understand you. Yet for years bitcoin has been plagued by people saying “I don’t understand it”. Somebody then explains how it works, how it solves the “Byzantine general’s problem” and some such – and everyone’s even more baffled.

It’s a system of money for the internet. That is all you need to know.

What’s Mixin? It’s a new messaging system (I think). That’s the first thing that should be on the website. Then ordinary people get it. But if your strapline – the first thing people read about you – is “A TEE powered BFT-DAG network that connects all existing blockchains with unlimited throughput”, how on earth can that be described as communication?

This is a sector-wide affliction.

Anyway, Mixin has recently done a token sale, it seems. There were some issues with bugs. There was a fake account masquerading as Mixin on Twitter. And now it has a market cap of $400m-plus.

A bubble is a bull market in which you don’t have a position

Whenever you read this kind of stuff, it’s all too easy to scream “bubble”.

“I don’t understand it. It seems to have no real world utility. The price has gone up by an extraordinary amount. Therefore, it’s a bubble.”

Remember my first definition. A bubble is a bull market in which you don’t have a position. It is human nature to dismiss and discount something in which you are not invested. It’s a way of justifying your lack of exposure.

But at the same time that doesn’t mean you should all go out and invest in something you don’t understand. Warren Buffett famously avoided the dotcom collapse having followed his maxim never to invest in a business you cannot understand. But he also missed out on all the gains.

There is so much going on in the crypto space at the moment that it is more than a full-time job keeping up. The metaphorical technological western frontier is being expanded on a daily basis and there is a gold rush. You cannot hope to dance with all the alt-coins girls.

But at the same time, you want to dance with at least some of them.

So my advice remains the same as it has always been: buy a small amount of cryptocurrency – £20 or something. Get a friend to do the same. Practise sending each other small amounts of money. Visit a site that accepts cryptocurrency. Buy something. Open an account with a cryptocurrency exchange. Trade small amounts of currency for another currency. In other words, play with the tech. Learn how it works. Familiarise yourself.

If you like it, if you think it’s good, then invest. If you don’t, walk away. But that way, at least you will have tried. You won’t be a no-coiner ignorantly dismissing something you don’t understand. But nor will you be blindly chasing some market merely because the price is rising.

You’ll have reached your decision based on some research.

Maybe Mixin is really good; maybe it isn’t. Somebody somewhere seems to think there is something to it, even if it is incapable of explaining what it does. That’s why it was up 60% yesterday.

Maybe with WhatsApp, SnapChat, Signal, iMessage, Telegram and old school texts, we don’t need any more messaging apps. Maybe Mixin is doing something none of these do. Who knows? Anyway, I’ve just downloaded the app onto my phone and I’m going to try it out.

Problem is nobody else I know has!

PS Thanks to everyone who came to the try-out of my Financial Gameshow on Monday. We had fun. My MoneyWeek colleague, Ben Judge, turned out to be the winner, prompting many in the audience to make accusations of an inside job.

I’ll be back with another try-out in North London on 22 May. Come on down. And if you’re up at the Edinburgh festival this August, tickets for the main run have just gone on sale. It’d be great to see you there.

  • It’s not just a bull market where I don’t have a position. It’s a bull market where nobody in my circles has a position. So who does? Money from crime, without a doubt. Speculators, without a doubt. People shifting money out if their country, avoiding currency controls, check. Who else?

    • Simon

      A good question. Why would any ordinary person want to receive payment in Bitcoin or indeed any crypto that might be worth 10% less a day later? it might be worth 10% more but that’s merely a gamble with no real way to assess the risk or probability. Unless of course that person is doing something he should’t be, wants to evade tax, is selling something illegal, or questionable. Us ordinary folk may be limited in imagination but it is hard to see an application for a crypto currency in everyday non criminal life.

      I think its a good thing that Moneyweek explores it but I don’t think Dominic should refer to investing in it. Trade ok, gamble ok but investing is something else and there is usually some research, analysis, risk assessment, even predictability involved to distinguish it from mere gambling, which are pretty much absent from crypto transactions.

      A look at the Mixin website suggests that while English is the language chosen it is not the mother tongue of those writing on the site or if it is they weren’t taught how to use it beyond a very elementary stage. This adds to the confusion and poor comms.

      • kowloonbhoy

        I pay for some of my coding work in East European countries with BTC. They also accept other CCs. It is convenient when one party may not have access to a commercial exchange system other than a slow & expensive bank. The transaction fees are high though.

  • Box of Frogs

    Rubbish. Crypto currencies are not forms of money for the internet. Since nothing is actually priced in those currencies. No-one in their right mind would ever price anything in a fixed supply currency. The whole point of money is that its supply needs to be able to expand and contract to match productivity. The issue arises only when it does not. i.e deflation/inflation

    CCs are purely a form of online gambling, with ultimately a zero sum gain. And so It is no coincidence that they are highly popular in Asian countries where gambling is illegal. Now some people may make a lot of money gambling or facilitating gambling, but let’s not disguise this market as anything other than what it really is.

    Not to be confused with Blockchain technology which is a data exchange and confirmation technology which can still take place whether BTC or other CC is at $1M or $0.00001.

  • Andrew Goodman

    Doesn’t sound like a lot of love for either Dominic Frisby or cryptocurrencies on here. If you don’t value them, don’t invest in them. But don’t dismiss what is effectively a new asset class because you’re unable to envision the future.

    Cryptocurrencies are the answer to our dying debt based fiat money system. See them like that and they make a lot more sense. They are going to benefit the world hugely, removing costly debt money and replacing it with asset money. Now do you see? No? Never mind. Go back to your stocks and shares and gold and silver coins.

  • Huabo Zhang

    Mixin is a pretty geek team, not well good at expanding their followers on twitter. but technologically good change with TEE and DAG tech.