- the source for market opinions


January 28, 2019 | Bitbrains Revisited

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Investing isn’t gambling. The sooner you learn that, the happier you’ll be. Especially if you’re a young cowboy Alpha male with a discount trading account. Or a hipster crypto fanatic with a loaded credit card. There’s a big world full of sharks out there ready to eat you up.

This week’s example is Bitcoin, which on Monday was (officially) 80% lower than its peak a little more than a year ago. As such it’s equaled, and will soon surpass, the epic meltdown in tech stocks at the beginning of this Century. At that time dot-com millionaires on skateboards said ‘it’s different this time.’ It wasn’t.

The tech bubble wasn’t about the future of the Internet (that was obvious) but the speculative over-valuation of profitless tech companies by naïve investors. Similarly the Bitcoin bust doesn’t negate blockchain technology or the digitization of money. But it’s wiped the floor with fools who thought crypto currencies created out of nothing, backed by nothing and regulated by nobody were worth billions.

Bitcoin went from $5,000 to over $17,000 in a few weeks because of insatiable plastic-fueled demand from uncooked investors who bought into an implausible story. They actually believed money could be manufactured privately, be free of central bank control, independent from government, untaxed, devoid of interest and yet be a medium of exchange. It was a scam. As usual, a small number of people got filthy rich. Millions of others, most of whom bought Bitcoin on Visa or MasterCard, have been wiped out – and are paying 19% interest on the losses.


It was all so obvious. On the last day of November in 2017, when BTC had just surged to almost $10,000, here’s what this pathetic blog had to say:

Do not buy Bitcoin. No matter how easy it is. How powerful the pull of greed. How seductive the effortless, unearned gains. This will not end well.

All it takes to buy is an email address, a smart phone for two-factor identification, a bunch of clicks and a credit card. There’s no personal information required, no identifiable data (except your card number or bank account info), no suitability requirement, nobody wondering if you’re a 13-year-old using mom’s plastic, or an 80-year-old with dementia. Click. Buy. And you own the world’s most volatile, dangerous asset.

Bitcoin, of course, isn’t money or currency. As a medium of exchange it fails every test. Few vendors will take it and transaction times are glacial. Even though bitcoin volumes are a tiny fraction of those handled by Visa, for example, the network is clunky, pedantic, massively inefficient. Nobody is going to be buying groceries, cars or ETFs with bitcoin. Fentanyl and automatic weapons, maybe.

Buying bitcoin is not investing, it’s gambling. By proffering your credit card to get some, you’re not sticking it in the eye of central banks, governments or The Man. You’re probably blowing off your own foot. Bitcoin doesn’t pass the investment smell test. There’s a reason its volatility has been 100%, with zero reliability. No government underwrites or stabilizes it through a central bank, which controls the supply and price of money. Digital currency offers no income stream, no guarantee of liquidity, no underlying security, no assets backing it and no failsafe way to safely store it, as with equities, bonds or funds.

And while the blockchain technology that allows digital currencies to exist appears brilliant, recent investors in bitcoin will probably lose most of their money. The threats at the moment are legion, and anyone ignoring them, hoping to double their wad by Monday, is the greatest of fools.

The BTC story isn’t over yet, and may not be until the losses equal 100%. Nor should it be viewed in isolation. The destructive urge for gains-without-brains also manifests itself in the junior resource stocks your BIL suggested. In buying individual securities mentioned by some impoverished journalist in the Globe or a discredited stock-flogging, bow-tied analyst on BNN. Or shoveling your retirement money into silver bullion, or handing over your net worth to a mortgage investment corp promising 8%.

Investing involves understanding risk, and seeking to mitigate it while putting capital to work. That’s why the best portfolios are balanced – holding growth assets plus safe, income-producing ones – and diversified, with several distinct asset classes. Risk is less when you own ETFs containing hundreds of stocks, instead of picking a few separate companies. It falls when you diversify out of Canada, which represents but a sliver of the world’s markets. It’s also safer when you own things like REITs, since rental income within them is not dependent on stock markets.

And, kids, it’s still not different. It never will be.

Property sales are down 20% so far this month in Calgary. In Victoria the drop is just over 30%. Alberta is in an oil-induced, NDP-augmented, pre-electoral funk. BC is just pooched, – unaffordable, stressed and terminally over-taxed.

Vancouver numbers due out early next week should be ugly as the climate there turns even more toxic for owners and investors. As if Comrade Premier Horgan and his eat-the-rich finance minister were not enough, the new YVR mayor is turning out to be just as anti-house. He’s now taking the steps necessary to triple the ‘vacant house’ tax which last year ripped $38 million from the hides of homeowners while doing nothing to lower rents or increase the vacancy rate (which was the only rationale for it).

Not that anyone thought it would. After all, this is just another tax on wealth. Added to the anti-foreigner tax, the anti-Albertan ‘speculation’ tax, and the special extra property tax in selected neighbourhoods, the EHT is an additional reason no sane person would buy a property in YVR, the LM, OK or the Island.

“The tax is proving effective and tripling it will just amplify that effectiveness,” says Mayor Kennedy Stewart. At the same time government stats show the vacancy rate is lower in areas where there is no tax.

As reported here yesterday, be careful what you vote for. You might just get it.

STAY INFORMED! Receive our Weekly Recap of thought provoking articles, podcasts, and radio delivered to your inbox for FREE! Sign up here for the Weekly Recap.

January 28th, 2019

Posted In: The Greater Fool

Post a Comment:

Your email address will not be published. Required fields are marked *

All Comments are moderated before appearing on the site


This site uses Akismet to reduce spam. Learn how your comment data is processed.