As IF Times

It’s difficult to have a party conversation these days without someone bringing up the topic of crypto-currencies or meme tokens. If they’re not involved directly in some way, (and believe me, they would tell you if they were) they know someone who has become wildly wealthy on these products.  Bitcoin is certainly the most well-known of these products, but imitators and variants of all kinds appear like mushrooms after a summer rain.

Typically, the discussion falls into 3 camps.  One camp is pro, one is skeptical and the third has no clue how it works.  I suspect most people are still in group 3, but that’s likely to change in the next year.

In the skeptical camp are those wedded to the idea of fiat currencies, which is by and large how the world operates after the decoupling from the gold standard by the US in the 1960’s. Once there was no underlying exchangeable value between a given currency and something tangible, like gold, then the value of the currency became worth only what the issuing country said it was worth.  This works fine as long as they didn’t keep printing more of them with no underlying basis. It’s a bit like musical chairs but with more chairs added all the time and the music keeps playing.

The skeptics also point out that digital currencies are just air; that there is nothing behind them other than ‘scarcity value’.  In fact, today’s reality is that fiat currencies are also mainly digital and that any link to a physical asset is debatable.  While some may scoff, assigning value to a few pieces of government paper is pretty complacent too. While we no longer have to lug around a bag of gold or silver, increasingly, physical cash is also less and less used in our daily activities.  We use digital ledgers to record our transactions and bank balances for the most part…same as crypto.

Skeptics point out that a currency has a value based on the good faith and undertaking of the issuing government. While true, we’ve seen numerous instances of governments reneging on the value of their currency by devaluing them without notice. Savvy people realize that prices of things aren’t going up because of inflation, but rather that the purchasing value of the currency is going down because of devaluation.  Just ask Canadians.   It wasn’t long ago that the value of the Argentine peso was derived from its collective weight, not the nominal printed value.

In the case of digital or crypto currencies, no one authority determines the value of the currency; the value is kept by a common ledger which determines the value of the currency by aggregate supply and demand.  Of course, the downside is volatility since prices can be subject to crowd manias and panics.  But at least they aren’t subject to a small group of manipulators printing currency as it suits them.

With crypto, the issue is fungibility; that is the interchangeability of the currency. In the 1800’s it was common for individual US banks to issue their own currency notes which were not exchangeable for those of other banks.  As time goes on, all of the various crypto products will require some method of exchange.

The entire point of crypto currencies is to retain a storehouse of value when fiat currencies are debased by bad or incompetent state actors….as we’ve seen in many nations, including western nations over the past half century. In theory, this storehouse is immune from the confiscatory policies of governments.  As these policies become more evident, it’s likely that people will move some of their assets towards reserves of non-manipulated currencies. That doesn’t mean governments can’t get you.  They can still tax you.

link:  https://www.hindustantimes.com/world-news/us-news/hawk-tuah-girls-meme-coin-crashes-from-500m-to-60m-in-minutes-fans-in-meltdown-101733405915215.html

The name Hailey Welch may not be a household name to average people, but she achieved meteoric notoriety in the past year over a simple unrehearsed response to a question posed of her in a street interview; likely when she was over-refreshed.  From that response that went viral, Hailey became known as the ‘Hawk Tuah Girl’.  As an example of Andy Warhol’s dictum that everyone has their 15 minutes of fame, Hailey became ubiquitous as she was interviewed by everyone who had a podcast.  She threw out baseballs at games, had to hire a manager, created a merchandise line and acquired millions of on-line followers.

What else was there to do?  Well, in following the most recent tide of cultural fashion, she created a digital currency…of course!  On a platform called Solana, the Hawk Tuah memecoin was launched.  As befitting the hysteria which is the digital currency space, the valuation instantly rose to a valuation of $500 million dollars!  But wait! The Cinderella story quickly became a pumpkin when within 20 minutes of launch, the valuation had crashed to only $60 million.

Naturally a wave of outrage erupted as people who had bought into the meme token, then lost a pile of money, were indignant that this could happen.  It seemed outrageous that you could actually lose money on buying nothing!  Hailey went from being a heroine to a scoundrel overnight.

Those of us who’ve been around long enough to have lived through numerous market cycles are frankly amused at the outrage surrounding this fiasco.  As is standard for human nature throughout time, blame is always directed everywhere except where it rightfully belongs….with oneself.

The modern crop of internet speculators are such ripe victims for naïve market activity.  They don’t know a treasury bond from a James Bond, yet they are lured with visions of instant wealth by others who have purportedly done the same thing successfully.  There is a distinct difference between price and value. As reference for those who don’t know the difference, price is the level at which parties agree upon when they have different perceptions of value.  Somebody thinks something is cheap, while the other party thinks it’s expensive.

In fact the ‘Hawk Tua’ memecoin is an excellent example of any free market, including stocks, real estate, jewelry, baseball cards and especially art. There is in fact no absolute inviolable value of anything, only the price at which an item can fetch from another buyer.  The only reason that anything has any value at all is because someone else thinks there is a benefit to owning it.

Despite this basic truth, there are entire industries and countless people employed with the premise of advising people what to buy and to assess valuations of all manner of assets.  The fundamental reality of all free markets is that a price exists for an item only at that point in time and is entirely dependent on the confidence of the market players.

History is rife with examples of crazes and fads that have existed throughout time and through many different cultures. A classic work which documents some of the more famous ones is “Extraordinary Popular Delusions And The Madness Of Crowds” compiled by Charles Mackay.  He documents the environment that gave rise the infamous “South Sea Bubble” and “Tulip-mania”.  With humor and hindsight, he documents some of the greatest human foibles and neuroses throughout history.

Suffice to say, it must be in the human condition to be swept up by a frenzy of the mob and that once ensnared, the mob will have a life of its own, overwhelming individual’s ability to act intelligently.  So for those who got swept up in the Hawk Tuah frenzy, or Bitcoin fever, or real estate panic, or collector watches; congratulations, you are the mob.