During the meteoric rise of BitCoin in 2017, I wrote the following:
(Originally published November 28, 2017)
Gold Bitcoin Beanie Baby Bulbs
So, yeah, I’m not the first person to point out the parallels between the recent Bitcoin frenzy and the Dutch tulip mania of the 1630s. Nor, I suspect, am I the first to mention that Bitcoin’s meteoric rise bears shocking resemblance to:
- The silver and other precious metals frenzy of 1979 – 1980.
- The Beanie Baby Craze of the 1990s.
- The dot-com bubble of the late 1990s.
- The speculative bubble that led to the financial crises 10 years ago.
- The gold bubble of 2009 – 2011.
I wasn’t around for the first of those, but I saw the others happen. I even lost a large part of my meager savings in the 1980 gold frenzy. Every one of these events saw people betting their futures on a “sure thing” that “can’t lose.” They were putting their entire life savings into it, borrowing heavily to gamble on a speculative market that seemed like it would just keep going up. And in every case, the bubble burst, wiping out savings in a very short period.
Those bubbles burst because investors flocking to the “can’t lose” scheme drove the prices to levels that were unsustainable. Early investors get in, ride the rise for a while, and then sell to new investors who want the same kind of trip. It becomes a positive feedback loop, until the price becomes too high to attract new investors. One day, somebody wants to get off and discovers that nobody wants to pay what he’s asking for his position. He decides to sell at a loss, at which point everybody else starts to panic and starts unloading as fast as they can, hoping to get out with something.
I don’t know enough about Bitcoin and other crypto currencies to say what, if anything, they’re actually worth, or if the idea of crypto currency has any long-term merit. But the the meteoric increase in Bitcoin prices over the last year, from $750 to $10,000, brings to mind those parallels, and a little bit more research reveals all the signs of a speculative bubble. The number of companies specializing in crypto currency trading has grown tremendously over the past year. There are “network marketing” schemes that pay you for “helping” others get in on the deal. New crypto currencies are popping up. People are borrowing money to invest. People are posting cheerleader messages (“Rah, rah Bitcoin!”) on social media. I’m seeing more hockey stick charts every day. “Look what it’s done in just the last three months!”
There may indeed be some lasting value to Bitcoin and other crypto currencies, just as there was lasting value in Beanie Babies. I saw some at a yard sale last week, going for about 50 cents each.
Proving once again that people looking for a quick buck never pay attention to past mistakes, we have invented “meme stocks,” the most memorable of which was GameStop. But I think the newest one, the social media company called Trump Media and Technology Group, will eclipse even that. This is the company that supporters of Donald Trump created after he lost the 2020 election and got kicked off of Facebook and Twitter for his actions. The new site, Truth Social, promising “no censorship,” was designed to prominently feature the insane ramblings of the Bumbling Buffoon, and users who contradicted his incoherent missives or said negative things about him were banned from the site.
The idea was always to create the site, create a shell company (a SPAC — special purpose acquisition company) to acquire it and take it public. The site of course had some trouble getting started and even today is mostly a joke. But they succeeded, after a lot of investigation by the SEC and others, in taking the company public. At a ridiculously inflated valuation and with a Trump-typical ticker symbol: DJT. I think the last public company the Buffoon in Chief formed was called TRMP. No surprise, it failed. But not before Trump bilked his investors out of their cash. I’m surprised he managed to escape that one without any criminal penalties.
Anyway, an “investment” in this new company is nothing more than a gamble. And not a very smart one at that. The company lost $49 million in the first nine months of 2023. Its total revenue–every dollar it took in–was $3.4 million. And yet the company is valued, based on the price of its stock and the number of shares outstanding, at something like $7 billion!
Yes, that’s right: the company’s market cap is 2,000 times its revenue, and the company is bleeding cash. Furthermore, the single largest shareholder is the Bumbling Buffoon himself, a person who has a history of taking “investors'” money, siphoning off enough to repay his own contribution, and running the company into the ground. At current prices, Trump stands to gain something more than $5 billion if the company lasts long enough and the stock price remains at its ridiculously inflated valuation. He can’t cash in immediately, though: there’s a holding period on his stock.
You couldn’t convince me to invest a single cent in any venture that’s associated in any way with Donald Trump, and even if the Prevaricator in Chief weren’t involved you couldn’t convince me to invest in a company that’s operating at a loss and is valued at 2,000 times its total revenue. In a rational world, the company’s stock would be trading at just that: pennies per share. What a scam.