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VIDEO: Blockchain Chairman on Cryptocurrency Price Depletion

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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

Ravi Sood explains the state of contraction surrounding cryptocurrencies. Sood discusses the how the Canadian crypto market’s preference for mining has been detrimental as the crypto space becomes institutionalized. Sood remains optimistic that the cryptocurrency sector has the capacity to rebound. Sood believes more uses and applications for cryptocurrencies can be developed, which will help revive crypto stock prices. Sood compares the investment value of gold relative to cryptocurrencies, believing gold to be the sure bet, but insists opportunities for cryptocurrencies will continue.

Transcript

James West:   Hey, welcome back. My guest in this segment is Ravi Sood; he’s a cryptocurrency investor with connections in Davos, Ravi, welcome back.

Ravi Sood:    Pleasure to be here, James.

James West:   Ravi, tell me about your association with the cryptocurrency track at the Davos economic forum.

Ravi Sood:    Yeah, I was an active participant in the discussion of cryptocurrencies and Blockchain in general this year. Caught a lot of attention at Davos this year as part of the main economic forum, the WEF; I’d say, probably over 50 percent of the talks and the discussions were related to Blockchain applications, the Blockchain and cryptocurrencies in general. That was in January, so it was a bit of a different prevailing zeitgeist for cryptocurrencies, and where we are in the world at that time. And so I expect that’s not going to be the case in 2019 at Davos, but you know, certainly captured a lot of people’s interest, and a lot of interesting and forward-thinking people’s interest.

James West:   Sure. Now, cryptocurrencies have been in a state of contraction, let’s call it, price-wise, to say the very least. Today, bitcoin’s trading at $6,284, and the whole crypto experience could be more or less characterized at this point as a losing proposition, for the most part. So particularly when it comes to the bitcoin mining space, the economics have, more or less eroded, not just because of the lower price for bitcoin but because of the onboarding of so much hash power as represented by additional participants?

Ravi Sood:    Exactly, and if we look at the Canadian experience, or the Canadian capital markets experience with Blockchain and crypto, it’s almost exclusively – not exclusively, but very much heavily weighted towards mining. Mining bitcoin, mining Ether and various alt coins. And so that’s been, look, it’s been a difficult year. So we started with very high prices for the coins, huge enthusiasm, a lot of capital raised and a lot of capital thrown at it, and what I call a general institutionalization of that business.

So not so much the guy running a few mining rigs in his basement or attached to his Tesla, that sort of thing, and eking out a pretty good gain out of it; you have huge investments, like massive capital investments, tens of millions of dollars at a shot, in institutionalized facilities. And those guys are making money, but they’ve really ground the margin out of the process of mining, and I expect that process to just continue.

So if you’re not in an ultra-low-cost jurisdiction, and you don’t have the latest and greatest hardware, and you’re not operating in the most efficient possible way, you will get knocked out of that business. And even if you are operating according to all those parameters, necessary parameters, your margin is just going to be much lower than it ever was.

James West:   Sure. So would a recovery in the price of bitcoin solve all those problems for the miners?

Ravi Sood:    It does not. So what it would lead to is a brief margin expansion and a bit of a windfall profit for a brief period of time, but the network – and it’s actually one of the most elegant parts of crypto and how these currencies, bitcoin in particular but many of them, are developed, that the network feeds itself. So it gives you these incentives, but it’s decentralized network, and it gets added to and it gets funded by that change in price.

And so, within a very short period of time, 30 days, 60 days, 90 days, you’re going to see additional computing capacity come on the network, increasing the difficulty rate and basically compressing that margin again. So a big spike in crypto prices, for sure that’s a good thing; helps everybody’s inventory of coins, worth a lot more, will have a brief expansion in margin. But that margin goes away again. Remember, you’ll add capacity to the network, it goes to ultra-efficient operators, margin gets compressed.

James West:   So do you think that the price depreciation and the general sort of collapse in enthusiasm around cryptocurrencies except for those who are intimately involved in the game – do you think that derives somewhat from the idea that a lot of the representations made by cryptocurrencies have turned out to be not as representative? For example, the security question has been demonstrated to be vulnerable in that there’s been multiple thefts that have yet to really be resolved; the fact that individuals are using cryptocurrencies to conduct illegal businesses has more or less been a consistent theme in the news cycle. And so in many cases, you know, the value proposition of cryptocurrency is not all that it’s cracked up to be.

Ravi Sood:    I would say let’s see on that front. I think, my view is 2018 has been the year of, we had a huge boom, it hit Main Street, it hit Main Street hard, and yet relatively liquid in terms of comparing it to things like the T-bill market or global debt markets or even equity markets. Relatively small market that had a huge positive flow of funds. It hit Main Street and it blew up and it went nuts.

So you had this huge spike in prices, and now we’re in the bust and we’re in the hangover. So most people, the average person that’s participated in crypto in the sense of buying coins, is down. And probably down big. And so that average holder from the last 12 months, we’re in that hangover period and we have terrible performance from most coins. So maybe with the benefit of hindsight, not surprising, but do we now conclude that there’s no use for those coins outside of illegal activity, there’s no use case that it isn’t a major opportunity to develop entirely new networks and applications based on them? I don’t think we’re there yet. I’m certainly not there yet; I’m quite optimistic that huge new things are coming, and we’re still on our path to those use cases and applications that are really going to shed light on what we’re going to do with these things, and show some underlying intrinsic value to them.

Right now, you know, a lot of the feedback as well, what is bitcoin really worth, the offsetting argument being well, there’s a lot of energy and there’s costs to make one, but so what, if there’s no underlying use for it or market for it? Where is it going to be valued? How do you ascribe any value to it, it’s just a bunch of electrons? Well, it’s worth something if somebody’s willing to pay for it. People, bitcoiners will come back with the argument ‘Well, the US dollar is just a piece of paper’ which is true, and as a gold bug myself, I’m certainly of that view.

One slight caveat to that is, the US government is obligated to accept US dollars to pay taxes. So you always have some use for that funny little piece of paper; you can satisfy your tax obligation as not just an individual, a corporation. So there are a few caveats and wrinkles and subtleties to all those arguments, but ultimately we need to see more uses and we need to see the applications come through. So I’m not really – I’m not ready to write the epitaph for bitcoin or for cryptocurrencies. I think we’re in a very natural hangover phase, and let’s see what the next year or two years holds.

James West:   Sure. Do you think there’s a divergence in the sort of the more monetary application of cryptocurrencies relative to the utilitarian tokenization of cryptocurrencies? For example, I really view bitcoin as something conceptual and theoretical in nature, whereas I view Ethereum, with smart contract features built in, more of a utilitarian application that is essentially just an evolution in spreadsheets and transfer mechanisms where you can program certain features into a unit that can then be triggered based on certain events around a contract. So for me, there’s that differentiation, but when you look at the pricing of cryptocurrencies, Ethereum is as much under pressure as is bitcoin, so there’s not that sort of recognition, at least as portrayed by the price.

Ravi Sood:    I mean, the market and Main Street has treated them as currencies and as speculative assets. So I don’t think anybody – certainly there are people, but the general investor is treating them as speculative assets: they go up, they go down, I’ll buy more, I’ll sell some. We are not at that point where we’re really differentiating and saying – the general investor isn’t yet – that this is a new network, I own part of that network by owning ETH, by owning BTC, by owning whatever you own. And it’s part of it. And so if I own one bitcoin, I own one token, I own part of something. That general recognition that it’s a network and that you own part of it and that there’s some sort of value on that, I don’t think that’s there with the general investor, and as to how to value that network and what that token is actually worth in those broader cases? Very hard. We’re just not there yet.

So it is a speculative asset, so very hard to figure out what – if you put a gun to my head and said where should I buy this or what’s the real value of it, man, I would not have an answer for you. We’re just not there yet. But there is value to these things.

James West:   Sure. Okay, so the arguments, many of the geopolitical arguments made on cryptocurrency’s behalf are the same arguments that gold enthusiasts have had over the decades, and really, absent, you know, smart contract features and things that gold just will never have because it’s just actually a piece of rock at the end of the day, nonetheless, a rock that is metal. It’s a metal, sorry, that has been known to carry its value across, you know, perception and history.

At this point, I happen to know what you’re an investor in gold as well as crypto-technology; which is the better investment right now from where you sit?

Ravi Sood:    Look, I’m a long-time gold investor and believer, and I’ve got several thousand years of history behind me on that one. At the end of the day, one ounce of gold is still one ounce of gold, and I know what it is, and we tend to favour the US dollar as numeraire and say gold is worth so many dollars per ounce, and I still keep coming back to the view that one ounce of gold is one ounce of gold. However many Euros or dollars it buys me, that changes minute to minute, second to second, year to year, but that is an immutable substance, and that time immemorial has given value to it. We accept that as value.

We’re not there. I’m a big believer that digital currencies are going to play a huge rule in terms of Network 3.0, unlocking and unleashing applications that we haven’t even thought of yet, and maybe even forming some sort of piece of the monetary pyramid, I don’t know where. But I don’t have to solve those futurist debates and have a strong view with gold; I already know that it is money, it is the definition of money. So that one is simple for me; I can answer that question. Yeah, as an investor I’ll always stick with gold, but I still maintain that there’s still huge opportunities at some point in cryptocurrencies.

James West:   Fascinating conversation as usual, Ravi. We’ll leave it there for now and come back to you soon. Thanks for joining me today.

Ravi Sood:    Thank you, James.

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

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