Cryptocurrency Mania Is The Most Fascinating Financial Phenomenon Ever Seen

The piquant irony: My ruminations were recorded on Wednesday before the stupendous crypto-crash on Friday. Some of the things Wolf Richter with Jim Goddard discussed two days earlier actually occurred; cryptocurrencies crashed across the board in a spectacularly dizzying way. The craziness of this, and the religious fervor with which these things are being promoted, and what happens when some folks are trying to get out, are taking on ever grander, more exaggerated, and even humorous proportions....

All kinds of reasons are being trotted out to explain this massacre, but there are really just three things that matter and that came together:
1) There is no liquidity in cryptocurrencies, and it’s devilishly hard to get out without crashing the price. So when even a modest amount of selling occurs, the price crashes.
2) There is no rational framework to value these things, so they cannot be “overvalued” or “undervalued,” and the price can go anywhere, and that’s what it does.
3) Betting on cryptos is a peculiar form of online gambling on a global scale that requires a consensus among participants that they only buy, and you cannot ever cash out. Now that some folks are trying to cash out, the bets for everyone else are souring. The same dynamics that pushed prices up have reversed and are causing them to crash.
# Every day, I get a dozen or more emails in my inbox that promote one or the other crypto or ICO. There have been about 170 ICOs so far this year that raised over $4 billion. So this is big money. The promoters, some of them are hired PR firms, others are parties related to the token issuers, want to get free promos on my site. That’s how they operate. They’re promoting the craziest things. And many of them are now promoting the “next bitcoin.” These promoters are also paying a ton of money for ads, which have spread all over the internet, including “next bitcoin” ads. It doesn’t help that the SEC has finally woken up and is starting to crack down. “We’re in line for some serious regulatory responses to all of this and that will be forthcoming after the first of the year,” Harvey Pitt, former SEC chairman, told CNBC on Thursday. There has already been some action, including blocking an ICO in the US. “Everyone else is investing in it, and the price seems to be going up,” Pitt said. “That’s a real problem because there’s a lack of education and knowledge on the part of many of the people who are actually doing the investing.”
The SEC’s impact will be limited because much of the betting is happening in Asia. But there too authorities are cracking down, particularly in China and South Korea, even while North Korea is hacking into exchanges and wallets and steal what it can. Meanwhile, for onlookers, it’s a form of entertainment, a glance at the dizzying, whiplash-inducing wonders of a world gone nuts. A software startup registered in the Cayman Islands and lacking a central office has accomplished an astounding feat: It has extracted $700 million from the global public by selling tokens, called EOS. It is by far the largest ICO ever. Hang on to your hat....