On February 25th the Zuger Woche newspaper popped through the letterbox with the front page headline, ‘Bitcoin – was ist das?’ (German is so alike English that readers need no translation). I was sufficiently struck by the headline that I took a photograph (now posted on social media), the reason being that Zug is known as the epicentre of Europe’s ‘Crypto Valley’, with growing concentration of crypto currency firms establishing there. While it’s not quite the same as Le Monde asking, ‘What is the Mona Lisa’ the headline does illustrate the disconnect between new areas in finance and technology and the ‘real world’.

Having written about crypto last week I had little intention of returning to the topic this week, though the collapse in the crypto complex is worth a few words (Ethereum halved in value in about four days). The extreme volatility confirms that bitcoin and most of the other crypto currencies are not money, and likely have no economic role (blockchain, tokens may be different) and as an asset class could best be described as a ‘bauble’ – a tacky trinket of an asset. Even tacky trinkets have their place, but in the case of finance they lie somewhere on the asset spectrum between art and race horses.

Having rubbished bitcoin, there are two other more important points to make. The first is to reiterate last week’s note which is to restate that there is a storm brewing between centralized finance and decentralized finance. Last week’s crypto volatility was spurred by China curbing financial institutions’ use of crypto currencies (twice announced), and by the US Treasury’s move to draw cryptocurrency holdings into the remit of the taxation system. Note also that this summer the Federal Reserve will launch a discussion on digital currencies.

Bitcoin, whose coding incorporates a news item regarding the global financial crisis, is an affront to the staid world of central banking and a threat to governments’ taxation programmes, and indeed to the probity of financial systems. As such, the crypto world should continue to expect attacks from finance officials. The exception may be the likes of Switzerland, where, in the case of Zug the authorities have set out the technological and regulatory backdrop for a new eco-system to grow (Zug allows taxes and train fares to be paid in bitcoin).

The second point to garner is that despite a number of policy moves, the crypto complex is still standing. I am not sure if this can be attributed to the workings of the decentralized finance system (I don’t know enough about it), or its lack of liquidity and more simply to the risk appetite and deep pockets of those who invest in crypto.

I wont dwell any more on crypto. Back to the Zuger Woche, whose editors have reinforced a trading strategy – my rule is that newspaper, and magazine covers are often a good, contra indicators of market and economic trends.

In a previous note I have highlighted how magazine covers can often offer the best guide to the future – though upside down. I am thinking of the famous BusinessWeek cover of August 1979 that proclaimed ‘The Death of Equities’ before the beginning of the 1980’s bull market, the 2014 Time magazine cover with the headline ‘Can anyone stop Hilary ?’, or the Economist cover ‘Brazil takes off’ in November 2009 just before its markets collapsed, and then ‘Has Brazil blown it ?’ in September 2013 as the country was about to boom.

The staff at the Zuger Woche just about got it right, on February 25th bitcoin traded at 55,000 and pretty much stayed close to that high level until the recent stumble. I will keep an eye out for any Zuger headlines that worry about the bitcoin collapse as a sign to jump into bitcoin.

Another related trading signal is the IPO (initial public offering) as a sign that a trend has peaked. It was the case with the mining sector and Glencore (a Zug company!) in 2011, and the recent market listing of crypto trading firm Coinbase (its down nearly 40% since).

In both cases – newspapers and IPO’s – the common factor is that the public are the last to discover financial innovations. Robinhood’s IPO is next week. Buyer beware!

Have a great week ahead,


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