Bubbles. That’s what we’re talking about today. Being active now in the crypto space for maybe three months, being aware of it for a lot longer than that, but only really being in the midst of it, attending conferences, speaking to industry insiders, actively trading and investing it. One of the first phrases that comes up is bubble, often by people outside the industry, and sometimes from people within the industry.


I think there’s a misunderstanding about this whole phrase, bubble. There are events. Tulip mania, if we go back to years gone by, was a complete bubble in my understanding of the word of the bubble. In other words, we had a situation where something was perceived to have a certain value, created a boom, and the prices therefore escalated to obscene levels. The whole thing fell apart and it smashed back down to being just an entirely commoditized, very cheap, available seed of a plant that could be easily got that had no value in terms of exchange, wasn’t storable, wasn’t particularly fungible, and in terms of being money, currency, or being intrinsic holder of value was a fail on every level and was a kind of mania that we’ve not seen since. Now, people say, “Ah, but we have. Ah, but we have. We had the tech bubble, we have a stock bubble, we have a bonds bubble, and we have a crypto bubble.” Those people will refer to each one of those categories as if they’re all the same in a sort of blanket statement. I’m going to analyse each one of them.


We’ll start with bonds. Bonds are needed to be created as we are in a debt-based economy, and the requirement for nation states to create them is because they’re not balancing their books. For example, America’s income from taxation only meets just over 50% of what it expends, so it is perpetually creating new debt. That is on a hyperbolic scale, so the more it creates new debt, the more the service costs for that debt increases, which is why we have exceedingly low interest rates and we are running out of runway for the current financial system.


One could argue that bonds were, at one point, a suitable investment asset. They were less volatile than equities, and they provided an interest yield, and at the end of the term you got your capital back. That’s not the same as buying a tulip seed for $50,000 and then it being worth less than a fraction of a cent months later. In fact, bonds were a respectable asset class for a very long period of this economic cycle. Unfortunately, due to the design of how money is created and the need to create ever greater supplies of money, added to which the behaviour of central banks, governments spending more than they need, this particular asset class eventually has a point where it ceases to be valuable.


It’s being created in such volume of supply that there isn’t sufficient demand for it as an investment tool. That government then becomes the buyer of last resorts, thereby committing further capital and needing to issue further long-dated bonds to meet it, has engineered the interest rates to all-time lows so that the cost of holding and servicing the debt on those bonds are so low that it can try eke out a few more miles out of this very empty petrol tank.


So, bonds were creditable, but due to conduct and inherent design and the nature of paying interest requires an ever-expanding capital base, and the subsequent hyperbolic nature of debt creation eventually escalating to a point where you cannot have real monetary policy anymore and you have a fail. One could argue at this point now in the economic cycle, bonds are hyper-overvalued and are largely going to be defaulted on in a number of ways, either through extreme hyperinflation at a later point, or government decree and failure to pay upon outstanding debts and the effect of a reset, which is what I’ve discussed a lot on YouTube.


Then let’s go to the dot-com bubble and let’s talk about bubbles in the context of equities. As long as you’re in equities, the bubble aspect is only about an overvaluation. If you’re talking about companies that are feasible and have an ability to generate an income and earnings, they can go from being overvalued to undervalued and being fairly valued. The phrase bubble actually means in an overvalued state. Due to most fundamental measures, equities are in an overvalued state. The nature of the correction is often very violent and vigorous, as opposed to the long, grinding period of the overvaluation in which capital continues to chase this particular asset class.


Many [inaudible 00:06:16] might be exiting bonds, for example, and you have a situation of overvaluation, plus you have management that want to make options meet, are creating less profits, but then borrow money exceedingly cheap, part of the bond bubble, and the management of the interest rates low, so you actually have one bubble … Bubble, bond bubble supporting the equity hyper-overvaluation, which I prefer to call, rather than the bubble, and you get cash actively being bought, but buying back shares by being borrowed exceedingly cheap, which is cheaper than paying earnings or even a dividend to shareholders, so you just borrow up and you buy back shares and you reduce the amount of equity, and you increase the amount of leverage in an environment where leverage is exceedingly cheap for the reasons given on the bond market.


So, you get a hyper-overvaluation in the equity market. The hyper-overvaluation in the equity market could correct exceedingly violently, which is why people will refer to it as a bubble. In other words, think as they’re being virtually valueless like a tulip bulb, which it is clearly not. Owning a share in Google and Amazon that sells 42% of what most retail purchases now in the US is not ever going to be a valueless item. Could they make a mistake? Could the company then go bankrupt? Yes, yes, and yes, but as it currently stands, it is just hyper-overvalued, potentially. It’s not a valueless item like a tulip bulb, which is virtually, in those times, worth fractions of a cent by the time things were done and you couldn’t give them away. They were stacked up all over the place.


I would argue that equities are in a state of hyper-valuation, and the nature of the correction will have everyone call it a bubble because it will deflate brutally when it does, quite possibly. It could deflate in a very slow and orchestrated way, but given the nature of all the other components of our economic machine, I don’t think so. Anyway, I want to talk about the crypto, because that’s where I’m wanting to end up. In the beginning of any major industry where there is extra normal potential, or extra normal returns, it is human nature, not the assets’ or the underlying market’s fault. It is human nature to all storm in. The get-rich-quick fever, the red mist that descends that’s all gold panners buying shovels, spades, and Levi canvas jeans to be on their hands and knees, panning for gold in a river when there was gold run, is human nature. Not gold’s fault. The perception of valuation and the easier opportunity to make money.


So, in an imperfect … In a, well, near perfect but never perfect economic system where you get usually the similar amount of work and effort required for a similar return. If you suddenly get a window where there is easier return for subsequently less efforts, and small fortunes can be made in shorter times or very sudden times, what actually happens is you have a reallocation in an efficient, human labour mentality; a reallocation of resources and interests into that new industry. Some people may be authentically valuable and always part of that industry. So, in Bitcoin you’ll have tech developers that were interested in it. They were interested in the libertarian elements, they were interested in contracts not involving lawyers anymore, they were idealists, pure and bright, and building something that has now become technologically enabled and possible.


What then happens is peripheral and zone two and three people come in here because of the smell of money and potential opportunity. I would have to fall into that. I’m a trader and I’m interested in markets that move and that compline to my theory. I am also libertarian; I am also anti-state; I am also anti-federal reserve; I am for the liberation of money. So, I overlap a little bit, but when I put my money in, it’s because I’m looking for hard and real profits. Most of the other people that are being sucked in, where they are becoming aware that hyper-normal returns are being achieved, they are reallocating time, energy, resources, and investment capital.


While that window is open, you get all the bubble callers. It’s a bubble, it’s gonna collapse. These are people that are angry that they’re not being part of it, or can’t participate. Maybe they’re stuck in an employment or a job where they can’t, or they’re just amateur market commentators. They see something moving vigorously, and they immediately go to tulip mania model, as if that is the case. If we look at the dot-com boom, of course there was pile of trash amongst that, but in and amongst that was Amazon, eBay, Sysco, Oracle maybe just … Google, and the list goes on and on. Subsequent Web 2.0s like Netscape, et cetera, that are delivering entertainment through the internet.


You can say dot-com was a bubble that burst, and I will say it was about the internet, and going … One of the biggest changes in how we function. We never did internet banking; we never did internet shopping. We never did any of these things before. Your life has entirely changed because of this. You want to call that a bubble because there was some mania ideas about selling bridal gowns in it, and there was a ramp in the acid value that overshot because of human nature, and then subsequently corrected, and then found its true point? That is volatility, and we specialise in that. The explosiveness of volatility, the faster you explode to the upside so you will have vicious pullbacks. But in an industry that is game-changing, that was the web in the dot-com bubble, bubble, our lives are entirely transformed.


You want to call a transformationary technology a bubble? Be my guest. To me, it wasn’t. It’s a natural life stage cycle of a new industry forming that you will have a mania, and that’s the human factor, not the industry. It’s the potential of the human factor, it’s the potential of the industry, and the nature of the human factor that has created that. And greed will always push valuations well past what they should be, because you get a reallocation of capital away from what was then called bricks and mortar into the internet boom.


Now, my supposition to you is crypto has nothing to do with tulip mania, the original foundation of bubble thinking. Crypto is far more like what was called the dot-com boom, but it was a boom, and it never really went away. Valuations on things that didn’t justify them got caught out when the tide went out, but the true potential never went away. How many times did I hear, throughout the dot-com boom, Amazon, how could it be valued like that? The biggest knockers of … It’s never yet made a profit; it’s on 200 times earnings. Oh my God, you should never be buying it, you should only be shorting it, only be shorting it.


All the bubble callers were all over how worthless Amazon is, which, by the way, crossed $1,000 just recently, and now sells, as I’ve already said, 42% of all retail, and for smart tax purposes, elected never to make a profit, and reinvest its cash in one of the most growing key areas. Do you still think Amazon itself represents a bubble? Do you use their services? Do many other people use their services? I suspect they do, and so do you. So, my point to you is this: crypto, you can call it a bubble, and valuations will become hyper-extended. I believe Amazon right now is probably hyper-extended for how much and where we are. Is it going to go away? If we have a major recession, will their sales fall and their share fall? Yes, yes, and yes.


And when we move on and we move forward, because whatever happens, you don’t spend a lifetime in a depression or a recession, it will refind its feet and still probably be the primary internet’s reseller. Could they make a mistake and start screwing up, and Jeff Bezos passes on, or something else happens and they get a really bad CEO, et cetera, et cetera? Of course. Companies have life cycles just like everything else, but when you have a new, establishing industry, you will always have the bubble callers. Always. A fundamental, technological shift is taking place, and there will be ramps in overvaluation as hungry capital that is getting terrible yields in terrible markets. Overvalued equities, as I’ve already mentioned. Hyper-overvalued equities, and bonds that are probably close to being valueless and are being sustained by a corrupt government and central banking cartels across the globe.


So, given something that may represent future and is limited in supply, like, say, Bitcoin, and Ethereum is a very small leakage for lost currency coins, in this sense. You have limited supply, and people are suddenly realising the potential of this. Contracts, lawyers, investment bankers could be put out of work in the same way retail is finding it. Smart contracts are innovative. You could do your property exchange in a no-trust environment, that once A, B, C is met, that money that was held there automatically exchanges with the party that is meant to get it. No expensive conveyancing fees, being charged by banks for banks fees, lawyers having to phone the bank and submit this, and earning interest on your money and charging you for the privilege.


This is potentially changing. I’m talking about one legal contract in one segment of the population that will change. I’ve taken payment for services and programmes immediately from a client in crypto. It was available the minute he sent me the email with it. Immediately, from another part of the world. No bank took any of that money. I was able to acknowledge it, and he had sent it. Where’s Western Union going to be once this gets down to the poorer levels of the people that are forced to send money home to Ghana, et cetera, et cetera, and are paying incredible percentages for this? This is a changing industry, and I can’t even begin to get into all the detail of how it will … Go watch Tim Ferriss’s podcast; go read some of the white papers of the industries that are challenged by this.


Investment banking could even go by the wayside with smart contracts. Derivatives can be written on a no-trust basis, and executed, potentially, on these. Of course that’s going to be more complex. It’s not going to be in the first iteration. You’re watching films on the internet. You never thought of that when you first saw the internet, you thought it was a replacement of fast fax machine internet for sending a message. That’s all you thought of it at the time. That’s all I might have thought of it when it first came out. Look at what’s gone on. Look at what’s gone on, and recognise what crypto stands for.


So, you’re gonna hear the crypto bubble callers, and you will even find those in the industry that will apply the law of singularity. Bitcoin, for example, is the most famous one, the one I apply singularity to. They’re the originals. They married it. This is the only one to win. Everything else is a scam, as if there’s only solution, one need. This is a myriad of opportunities. It’s impossible for one thing to be all things to everything. It’s like, there would be one internet company that will do all your stuff, your banking, your movies, your pizza delivery, your online shopping, and one will own it all. You must marry it, and it’s the first one. This is what I call singularity thinking. It’s the first one. You marry it because you made some money on it, and it’s going to do everything, and everyone else is a scam, and don’t threaten my baby.


Marry your girlfriend, don’t marry an investment category or class. This is expansive thinking time. See the potential in the industry. Recognise there will be bubble callers all the way up, and it will go even beyond their highest of high expectations to uber bubble levels, because the amount of money that needs a reasonable place to hide, and never have we had so many shit places money is forced to hide. The amount of money that is being created is bigger than you’ve even realised in the banking binary world. Forget cash; I’m not talking about cash, that’s 3%. So, try and understand how big and far this is going to go. Of course, it will have violent sell-offs. The volatility of the upside will have the emotion of the people and the participants panicking in there. Ignore the bubble callers on crypto. They will be the bridesmaids at this ball. Walk down the main aisle and collect a flippin’ ring, a ring of pure platinum with the finest stone in it that is your financial independence ring.


Ignore the bubble callers on crypto. This is my message to you. This is my message to you. They’re out there. They’ll be amongst the crypto community. Treat every sell-off as a buy-the-dip moment. Treat every sell-off as a buy-the-dip moment. Stay out of the leverage and sit it out. You will come out king. Hear me now. This is not going away. This is money. Money is even bigger than the internet, potentially, and you thought the internet was big. This is money. This is doing business. This is a legal system, potentially, a new way. Trade is determined by rules and regulations that have always had a central arbitrar. This could replace that. Doesn’t mean it has to. It’ll be big even if it doesn’t.


But ignore the bubble callers. Buy-the-dip, avoid leverage, make sure you stay in the game, and aggressively stick with the blinkers on on this one point, and watch this clip every time you feel afraid. Buy-the-dip, accumulate cash, buy-the-dip, avoid leverage, and stay in the game. You will come out a winger, a winger, a winner, and you will walk down the aisle, and you will watch the bridesmaids before you that were calling bubbles, that were in the crypto game before you, sitting in their pews with tears in their eyes because they were underweight. They even thought of shorting because they wanted their belief system to be justified. This is not a game for the belief system. A cold, hard assessment will tell you that this industry is going to be huge.


That’s my take, and crypto is not a bubble. The phrase bubble should not apply. Will you have periods of hyper-overvaluation with abrupt and steep sell-offs? Yes, you shall. It’s called volatility, not a bubble. Will it still exist? Will coins and crypto currency still exist in five, ten years time? Absolutely, in my view. Will their market cap be higher in five, ten years time? Absolutely, substantially, in my view, and those that bottle it or watch the others make the hard, hard cash. Decide which one you want to be. Write it down on a piece of paper, put it on your screen. Stay the game, stay the course, and understand bubble.


Tulip mania is a bubble. The internet was never a bubble. Despite there being trash that had to be cleared out with a couple of sell-offs, where things that didn’t have real value were cleared out. There will be the same in crypto, there will be the rush of people that’ll try to create coins for the excess demand that will have no new raison d’etra. There will not be the passionate, deep-seated people which will have a real, value-based proposition of service to many. It’ll be copy cats, lookie-likies, and they will turn to crap. Trade in the top 10, where there’s already substantial money backing hard principles, and you will be fine. That’s Francis The Market Sniper. I can’t say anymore. It’s a long clip, enjoy.

Crypto is not a Bubble <== But yes there is plenty of overvalued/oversold fluff too <== Click to watch.