Cryptocurrencies – creating value out of thin air (and electricity)

By Rob Bruggeman

In junior mining, we often see companies seeded with cheap capital, followed by a pre-IPO round at a higher valuation and then an IPO at a higher valuation.  That is very similar to something I saw this morning relating to cryptocurrencies.  NetCents (CSE:NC) is creating a new cryptocurrency called NetCents coins. They are pre-selling the first batch of 5 million for $2/coin and plan to release a second batch of 5 million at $4/coin.  The coin exchange will then go live next month and coins will be valued based on demand.  Very similar to junior mining, right?  Well, there is that one difference, which is that a mining company needs to have a real asset.  With cryptocurrencies, there is no underlying asset and money can only be made based on the greater fool theory.  Bubblelicious!

Cryptocurrency talk is going mainstream, so the top probably isn’t that far off but things are likely to get even crazier before the bubble implodes, as it always does.  Sadly, electricity consumption related to Bitcoin now exceeds the power consumption of 159 countries (link).  That should be good for thermal coal consumption, since most of the electricity usage for Bitcoin is in China.

The thing that will ultimately kill Bitcoin and other cryptocurrencies is that barriers to entry are very low, as evidenced by NetCents.  Apparently there are now over 1,100 cryptocurrencies, so the whole argument about finite supply is completely moot.  Paper money can be printed by central banks, leading to hyperinflation.  Cryptocurrencies can be created by anybody, which will also lead to hyperinflation.  Ultimately, the trading price will revert to the fundamental underlying value.  Zero.

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