When we seek to look at economic predictions, to analyze graphs and predictions, with a view towards understanding what they are, or rather may be, saying; it is almost imperative to have a basic understanding of the fundamental concepts that underlie the noble discipline called economics. Regional factors have been taken into account. Let me begin with a few simple definitions.
Socialist: A person that has no money, lives a life of poverty, and is willing to share it.
Communist: A person that believes that the State should own all property except their own.
Business: Organised extraction of money from someone else’s pocket, usually without resorting to violence.
Inflation: Paying $20 for a $10 haircut that used to cost $5, back when you still had hair.
Budget: A mathematical confirmation of suspicions that should be blindingly obvious.
Bargain: Something you neither need or want, offered for sale, at a price you can’t resist.
Recession: (Bad) This occurrence is observed when the man next door loses his job.
Depression: (Worse) This occurence is observed when the man next door loses his job, and you also lose yours.
Economic Boom: (Good) An excellent economic occurrence, generally only described when it has passed.
Economic Value: (Wealth) The long-term return from a college education that is spend on educating recalcitrant children.
Economist: Someone that can use economic theory today to explain why he got all his predictions wrong yesterday.
Now, we have the definitions out of the way, let me begin by explaining worth. Something has worth, or utility, if it is useful. To give an example, water is useful as we drink it and use it for washing, power generation and irrigation. Now, for something to have value it must have usefulness as well as scarcity. A bucket of water does not have scarcity if you’re standing in a river, but you can be bloody sure that if you were standing in the desert there’d be someone around willing to sell you a small bottle. Now bitcoins, as well as other cryptocurrencies, can be used to buy stuff and bitcoins have scarcity; therefore bitcoins have value. They are similar in this respect to land and gold. There are going to be 21 million bitcoins someday, no more. There will be some cryptocurrencies that have launched in massive quantities, please look at the chart and the figures below. Now, if some currencies are not accepted to buy stuff… and if they are not scarce… they are, therefore, a crock of brown smelly stuff. Remember “What’s brown and smelly and sounds like a bell? Dung!”
When you next hear about the World’s next big cryptocurrency, bear in mind, if you’re in a strange town, playing poker, and you cannot pick out the sucker… it’s you. If retailers aren’t accepting a coin, if there are squintillions in supply, then it is probably just yet another pump and dump. People are investing hard earned money with people that they wouldn’t trust to walk their dog. The World of investments is full of shysters and some altcoins are simply an easy mark. Remember, the dot.com bubble? Investors saw websites making huge money and more and more people set up more and more sites, people ended up paying too much money, that they didn’t own, to buy too much stuff, that they didn’t want, so they’d look important in the eyes of people that they didn’t like.
When looking at an investment, ask yourself, who are the people behind it and does it offer something new? If the right answers are received at this stage, proceed to stage two, ask yourself how many will be in circulation and what is the market cap? If these look ok, then look at the level of pre-mining. If the coin is extensively pre-mined, we must be suspicious of the objectives of those early miners. Everyone talks about the early bird getting the worm but don’t ever forget that it’s the early worm that gets caught.
Image courtesy ICCWBO.