By Jacob Wolkowitz via

The railroad, the automobile, the airplane, the internet, gene therapy. All these things have changed our lives or continue to do so. They permanently altered the course of civilization.

They were investment disasters.

The beauty of an investment bubble is the central prediction usually turns out to be accurate. It is too soon to say whether blockchain or distributed computing will have the same impact as the automobile. However, we think investors’ experience with Etherium, Ripple, Dogecoin, and Bitcoin is going to be similar to previous generations experience with Cartecar, Ewing, Elmore or in more recent memory, Ask Jeeves or GeoCities.

Since cryptocurrencies have no natural cash flow (no earnings, no governments issue debt denominated in them, etc.), it is an asset class naturally prone to speculation because it is untethered from any normal method of valuation. Since I don’t have to justify the price by the cash I expect to receive in the future, my valuation is simply what I think the next guy (and yes, it is mostly guys) will pay for it. In investment lingo, this is known as “the greater fool theory”, as the investment really boils down to whether you can find someone more foolish to pay a higher price in the future.

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