The Crypto Question Conundrum
Jun 17, 2022
There is a question that has plagued crypto assets since they began trading. That question is, what do they solve for? It is fundamental to understand what the product does or has the potential to do in order to accurately assign any sort of valuation. I never have gotten a satisfactory answer and it would appear, neither has the market.
Initially it was thought crypto assets would become a currency. But a currency has to serve as a store of value and a store of value cannot have the volatility inherent in crypto assets. Bitcoin is down nearly 60% this year. Ethereum is down 70%.
Next, we were told crypto would serve as an inflation hedge. But as inflation began taking off and interest rates climbed, crypto assets lost value. So much for that theory. That brings me back to my original question, what does crypto solve for?
We do know blockchain technology has value. We know its ability to act as a ledger is better than anything we had prior. We know the different blockchains support different activities and offer varying degrees of scalability. That has value.
What doesn’t have value is dogecoin or any of the other countless tulip-frenzy-like knockoffs created in the last few years. Crypto and/or blockchain’s greatest value to most people has arguably been as a tradable asset. Nevermind that broad ignorance surrounding what was being traded. When you live in a world where all assets are bid up, asking questions as to why prices are skyrocketing is trivial relative to getting in while you can. And that my friends is a recipe for a bubble.
So here we are. June 2022. The bubble has burst. Reality has set in. Dogecoin, which once traded near $0.60 now hovers around a nickel. Many of the coins whose names spread through online forums faster than Covid have seen their market cap eviscerated. Most of those names will not be back nor should they.
Every bull market seems to end with an overhyped, overvalued, over indulgent, new paradigm preaching prophets promising passage to paradise. When the bubble bursts, those same people go back to where they came from and wait for the next bull market. At some point, they’ll remerge making lots of noise like market cicadas.
Don’t get me wrong, I do believe crypto has value. I do not think we will go back to a pre-crypto world. All I want and hope for is someone who can articulate in a simple way what the hell it is so I can try assigning a value to it.
Written by Dylan Ratigan and Josh Fabian
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.
tastytrade content is provided solely by tastytrade, Inc. (“tastytrade”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. tastytrade, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastytrade is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparison, statistics, or other technical data, if applicable, will be supplied upon request. tastytrade is not a licensed financial advisor, registered investment advisor, or a registered broker-dealer. Options, futures and futures options are not suitable for all investors. Prior to trading securities products, please read the Characteristics and Risks of Standardized Options and the Risk Disclosure for Futures and Options found on tastyworks.com.
tastytrade is a trademark/servicemark owned by tastytrade.
tastyworks, Inc. ("tastyworks") is a registered broker-dealer and member of FINRA, NFA and SIPC. tastyworks offers self-directed brokerage accounts to its customers. tastyworks does not give financial or trading advice nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastyworks’ systems, services or products. tastyworks is a wholly owned subsidiary of tastytrade, Inc (“tastytrade”).
tastyworks, Inc. (“tastyworks”) has entered into a Marketing Agreement with tastytrade (“Marketing Agent”) whereby tastyworks pays compensation to Marketing Agent to recommend tastyworks’ brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastyworks. tastytrade is the parent company of tastyworks. tastyworks and Marketing Agent are separate entities with their own products and services. tastytrade has different privacy policies than tastyworks.
Quiet Foundation, Inc. (“Quiet Foundation”) is a wholly-owned subsidiary of tastytrade The information on quietfoundation.com is intended for U.S. residents only. All investing involves the risk of loss. Past performance is not a guarantee of future results. Quiet Foundation does not make suitability determinations, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of Quiet Foundation’s systems, services or products.
Small Exchange, Inc. is a Designated Contract Market registered with the U.S. Commodity Futures Trading Commission. The information on this site should be considered general information and not in any case as a recommendation or advice concerning investment decisions. The reader itself is responsible for the risks associated with an investment decision based on the information stated in this material in light of his or her specific circumstances. The information on this website is for informational purposes only, and does not contend to address the financial objectives, situation, or specific needs of any individual investor. Trading in derivatives and other financial instruments involves risk, please read the Risk Disclosure Statement for Futures and Options. tastytrade is an investor in Small Exchange, Inc.