29 October 2021

Crypto coins which are also dogs

In the beginning there was hash Hashcash. Then there was Bitcoin. Then there was an infinity of crypto “currencies.” Nobody apart from nerds paid attention. Then someone realized that with enough pumping, these worthless digital tokens could be given value. The rest was history.

Dogecoin was created as a sort of joke demonstration that crypto currencies can have no intrinsic value. A coder created the the coin in an afternoon, to show how easy it was to create a new crypto currency. Since value is a measure of scarcity relative to demand, the infinity of supply of “crypto” was a demonstration that its value is nil. Unfortunately, most of the investing world didn’t understand this.

Real money has value derived from intrinsic or artificial scarcity. Gold can be used, because its supply is limited by the need to mine it. Over time, the price of gold tends to the marginal cost of production. Liabilities of a central bank can be used because — by construction — reserves are limited. It helps that taxes need to be paid in tokens issued by the central bank: nothing else will do, which creates the demand.

Demand is a psychological thing. People have surplus cash, and they may avoid the cryptos they haven’t seen advertised on the Tube. Shiba Inu, a currency named after the breed of dog owned by Elon Musk, who is famous for pumping Dogecoin, shot up 70% the other day. There are now advertisements on the London Underground urging commuters to speculate on Floki, another coin now named after Musk’s dog’s name.

A dog is a stock that never gives a decent return. I suspect that this was the motivation for naming Dogecoin. It’s amazing that un-ironically this very idea is being multiplied into a product that is making someone rich. Enjoy the ride, while it lasts!

Wrap

This week, there were no major movements. Bonds were a bit weak but rallied at the end, the dollar was strong, commodities largely marked time apart from oats and corn. Equities made new all-time highs, at least NDX, but not enthusiastically.

There is a steady growth in the number of central banks which are hiking. This should be bearish for the dollar, but it somehow isn’t. Maybe the expectations of Fed tightening are enough to support it.