Don’t let the Shoe Shine Boy Buy Your Stocks: My thoughts on Crypto

February 12, 2021

My Dear Reader,

Early this week I had a good friend and reader reach out to me to ask my thoughts on Cryptocurrency.  I realize that I haven’t covered this burgeoning financial avenue at all.  But whether I’m bull or bearish on it depends on a number of different factors.  When considering any flashy new financial toy to distract ourselves with, I believe that it is important to consider a few factors. 

  • How or what does this product produce for the public? 
  • What is the general public’s attitude towards this product or service
  • Why is there a frenzy around this company

As for the first question when it comes to cryptocurrency the answer is very little.  With bitcoin in particular, I suppose you can use them to purchase items on the dark web, but as far as a currency goes, can I walk into a convenience store and buy a treat with bitcoin? There have been cryptocurrencies that have tried to bridge this gap preemptively with experiments like Etherium, which intend to be supported by apple pay, but those don’t have the same “clout” for lack of a better term, than bitcoin or even dogecoin. The answer with bitcoin for the most part is that in order to make money with bitcoin, we have to count on more people buying bitcoin.  I’m sure that the recent fanaticism will stick around for a while longer, which will continue to drive the price up, but remember that bitcoin has crashed before. In a recent Forbes article, author Clem Chambers had this to say:

“In November I wrote about a rise to $40,000 and a fallback to perhaps as low as $5,000, although $10,000 is probably savage enough and anything below $20,000 starts to get interesting again for a DCA (dollar cost averaging) strategy. Well, I do not claim clairvoyance but it will look pretty good on Forbes in the coming years.”

In short, this means that cryptocurrencies may continue to rise in the short term but they are still nothing but speculation as of right now.  

Another worrying trend is similar to the anecdote by Jack Kennedy, Godfather of the Kennedy dynasty, “If shoe shine boys are giving stock tips, then it’s time to get out of the market.” At the start of the week, it was hard to observe any financial social media without someone, related to the financial industry or not, telling their friends to buy Dogecoin.  That was before it crashed by over 8 percent over the past few days, and now those same people are not singing the same tune.  The second barometer that we use when examining a rising price is the public attitude and I don’t mean whether or not the public hates or loves a certain company, but is the shoeshine boy telling you to invest in something? Might be time to consider that a price may be overvalued. Lastly, we have to question why there is a frenzy around this company or product, and in this case, it seems to me that it is a great marketing apparatus and good word-of-mouth.  But as we saw in our first question, it not because of solid financial grounding.

For these reasons, I would consider myself to be a bit bearish on the whole thing, at least for now.

To your creation and potential,

Kevin Prendiville