Crypto Currencies: Oversaturated and Overexposed

I started writing for Bull Market Rodeo last August. Over the last 10 months I have written a number of articles that look at the sentiment indicators toward different stocks, sectors, commodities and the overall market. One of my favorite indicators is what I call the Average Joe Indicator and I wrote about it last August.

I am a little disappointed in myself because I failed to realize there was an opportunity to make money off the Average Joe Indicator back last fall. Over the course of a few months, I was approached by three different publishers about writing a crypto currency newsletter. That should have been warning sign number one.

The second warning came when I took my car in for an oil change. The owner of the shop dabbles in the market and he knows what I do for a living so our conversations often turn to investing. Last fall he was telling me about all the money his brother had made off of his Bitcoin purchases. This was when Bitcoin had shot up from $6,000 to over $15,000 and eventually up to over $19,000.

I have to admit I have never traded any crypto currency and might not ever trade them. The reason is that I can’t evaluate them the way I do other investments. With stocks, bonds, and commodities, I can look at the fundamental situation, the technical picture and the sentiment toward the investment. With crypto currencies, there aren’t any fundamentals to analyze. Yes there are charts that you can look at, but the only sentiment tool right available right now is the Average Joe indicator. This would mean changing my entire approach to investing.

Regardless of my reservations about trading crypto currencies, many other investors are investing in them. The demand and excitement surrounding these investment vehicles led to new ones being launched. It also led to every financial publisher launching a newsletter to cover them.

Crypto currencies have been in the news even more than usual this week due to a huge conference in New York. The conference known as Consensus 2018 is being attended by thousands of crypto currency and blockchain enthusiasts. The conference also featured an interview with St. Louis Fed president James Bullard.

Mr. Bullard pointed out some flaws with crypto currencies that those in attendance probably didn’t want to hear. He compared the different currencies to the pre-Civil War period in the United States when there were multiple currencies. “People have not liked that kind of thing, they want a uniform kind of thing. A dollar is a dollar,” Bullard said.

Another issue for Bullard was the lack of uniformity in valuing them against one another. “The exchange rate problem is a big deal, because you don’t know how they’re going to trade against each other. That happens even with big-time currencies like the yen and the dollar,” Bullard said.

Finally, Bullard stated, “You’ve got this kind of special problem of who’s going to issue the currency and what are those promises about future issuance and can you really maintain the credibility of those promises. If you can’t, the value of your currency is going to zero the same way the Venezuelan Bolivar has.”

All of Bullard’s concerns are valid and until those issues are fixed, I don’t see the widespread use of crypto currencies. At least not a level of use that some of the crypto fans are forecasting.

The volatility that is being experienced is certainly attractive to short-term traders and speculators. Just in the last week the values have declined considerably. According to Coinmarketcap.com, the value of the currencies they track have lost $45 billion in total market cap.

About Rick Pendergraft

Rick has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick’s analysis process includes fundamental, sentiment and technical analysis. Rick started college as an education major, wanting to teach economics, but eventually changed to majoring in Economics and received a Bachelor of Science in Economics from Wright State University. His desire to inform and educate people is at the heart of his writing.

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