Crypto meltdown: Value Research take on the craze

It's not a self-congratulatory exercise; it's simply highlighting the perils of investing in bubbles with airy-fairy economics

Crypto meltdown: Value Research take on the craze

We at Value Research have been sceptical of jumping on the crypto hype train.

Lack of answers to questions such as "What's its value?", "Who is the governing body?" "Does it have an exchange?" always bothered us. So, it was tough for us to accept the new technology at face value. We wanted to understand it better before we provided our opinion. Alas! We got few answers, which is why we have been pretty scathing about the crypto mania.

  • The story No regulations, no rules, no jhanjhat, dated November 2021, appears prophetic, given that the world's second-largest crypto exchange, FTX, recently blew up spectacularly. In this article, we questioned why these crypto exchanges had little to no regulations.
  • This article - Some questions on crypto exchanges on December 3, 2021 - raised doubts as to how these self-styled exchanges actually function. This is an excerpt from the article:
    "Question 1: Is there any publicly verifiable proof that the underlying cryptocurrencies actually exist in possession of the exchanges in the quantum required?
    Question 2: When one investor buys a cryptocurrency and another sells the same, do these self-styled exchanges net it out, or do they independently buy and sell the underlying on some parent market for each?

We are still waiting for these answers. In fact, FTX has muddled our heads even more.

We'd suggest you read our FTX story to get the full context.

  • On December 8, 2021, we were still pulling out hair in this article titled How to buy and sell cryptocurrency? And how to earn from IPOs? Here, we were wondering how these exchanges were verifying investors' crypto holdings, considering the fierce post-COVID onrush.
  • A few days later - January 6, 2022, to be precise - we spoke about the Tulip mania of 1637: The first-ever economic bubble. We drew parallels between the roughly 400-year-old story and what's happening with crypto today. Here's an excerpt:
    "Our financial market is witnessing something awfully similar to the tulip mania in the form of cryptocurrencies and NFTs. [...] Cryptocurrencies which are meant to be looked at as currencies are being viewed as assets to make quick profits. Soon the bubble may burst...The tulip mania is a completely manmade phenomenon and we can just hope that this doesn't happen in the crypto market as millions of people have invested their savings in it."
  • In another article A crypto blowup, first among many, published on May 17, 2022, we ask why people say crypto has fallen. Since there is no 'value' in a crypto's underlying economics, how can we claim their value is much better now?
  • The following month's piece is damning. In our Empowerment and self-confidence story, we actually spell out reasons why cryptocurrency is not an asset.
  • This sentiment is echoed a few days later. "We prefer you stick to real investing" is what our CEO, Dhirendra Kumar, says in Zooming into the future. "When I look at 'innovations' like cryptocurrencies and NFTs, then F&O seems quite benign by comparison. I urge my investor readers to stick to investing - real investing - and not get lured by this activity."
  • In the 'An entirely predictable scam' story on WazirX in August this year, we went on a limb to say crypto exchanges are a scam and "a huge legal blackhole".

In short, we pulled no punches regarding the crypto mania, and neither did some of the world's most intelligent investors. You can give a quick read on how dismissive the great Charlie Munger has been of this fad over the last few years.

While we don't want to get under your skin, saying - "We told you so" - we are simply highlighting the risks of investing in a hype that can burst at any time.

That said, we aren't pooh-poohing the entire concept of cryptocurrencies, we are simply voicing our concern about the lack of regulations and economics that underpins this fledgling industry.

Suggested read: The crypto bloodbath

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