(Stock Gumshoe/ 401 G.C. July 2023) – Ian King has been pushing his “Next Gen Coin” story for a little while now, but the latest version of the ad focuses on the urgency of buying it right now, on May 23, so I thought I’d take a gander for you.
The ad takes the form of a “presentation” by Ian King and a pitchman whose name I forgot, but it’s all designed as bait to get you to bite on a subscription to Strategic Fortunes, which is being sold for $47/yr (or $199 “lifetime”). That’s some important context here — this is very much an “entry level” newsletter mostly about investing in technology trends, and I expect it’s aimed at people who are fairly new to investing and may well have no knowledge of cryptocurrencies at all. He won’t be teasing something wild or hard to trade with this pitch. King also helms several “premium” newsletters for Banyan Hill, including one called Next Wave Crypto Fortunes, so if you bite on this one I’d guess you’ll get the hard sell for Crypto Fortunes at $1,995/yr. almost immediately after your credit card clears.
The tone of the tease is like essentially every other lottery-ticket pitch in the cryptocurrency world: “Don’t you wish you had gotten those 18,000% gains some crypto traders earned recently?”
Which doesn’t do us much good, of course — watching a speculative bubble deflate, as seems to be the case with many cryptocurrencies of late, might mean that those of us who didn’t buy Lamborghinis with sudden crypto riches feel a little less FOMO-y… but we still know, for sure, that there’s no way to predict which of these little alt-coins will go from a few cents to $1,000, or even if that will ever happen again to any cryptocurrencies.
But one still lives in hope, of course — daydreams of riches are what keep us going through our dreary days, whether we want to buy a Bitcoin Lambo or not. Sports betting has never been more popular, lottery ticket sales burst back to popularity after the COVID lockdowns, and the volume of options speculation last year blew away all the previous records… why shouldn’t the fascination with low-odds bets continue to keep the cryptocurrency market on the front burner, too?
Yes, we’ve seen that the major cryptocurrencies are largely trading on the same sentiment as tech stocks in general, as Bitcoin and Ethereum are both close to 90% correlated with the Nasdaq 100 these days (meaning they all trade almost perfectly in unison), and prices of almost all coins have collapsed in sympathy with the stock market, so we’re getting some extremely clear signals that major cryptocurrencies are not offering any “get out of the dollar” inflation protection even if they do perhaps offer some avenues of escape for Russians as sanctions close off their economy.
But still, the libertarians hiding inside us love the idea of an egalitarian currency, outside of government and bank control and managed somewhat democratically (one dollar, one vote!), and our inner speculators keep looking at that Bitcoin Lambo. I’m far from immune to that sentiment, I sold a bunch of Bitcoin when it was priced at something under $1,000 five years ago (the market cap was an unprecedented and seemingly absurd $1 billion at the time — however could it go higher?), so I remain perpetually tempted by another bite at that apple, and I nibble sometimes.
And what kind of bite is Ian King offering, you ask? Yes, I’ll get to the point… here’s a little taste of the ad:
“… don’t worry, you’re about to get a second chance.
“Because as amazing as the bitcoin rally was, it’s about to look tiny….
“That’s because experts are predicting another rally, one that will be 20X larger….
“However, this massive rally won’t come from bitcoin…
“It will come from a lesser known, alternative crypto that experts are calling the ‘Next Gen Coin.’
“A crypto Goldman Sachs confessed “could overtake bitcoin” and the Nasdaq confirmed is a ‘contender to be the next crypto king.’
“Which is why JPMorgan revealed big institutions are piling in.
“And so are the rich and famous.”
Which is when Ian King starts to drop famous names of folks who are fans of this “Next Gen Coin”, from Mark Cuban to Ken Griffin to Ray Dalio to Elon Musk, and to throw in quotes from “hedge fund millionaires” that this “Next Gen Coin” could “overtake Bitcoin… and ‘power the rails of global finance.”
Sounds enticing, right? They say that it could “be the foundation fo the entire global finance industry… stock markets, banking, insurance, real estate, derivatives, everything.”
In King’s words:
“… ‘transform’ is kind of a weak word. The financial industry is about to be blindsided. This coin is going to shake up the entire industry. Flip it on its head. Just like Netflix blindsided the traditional entertainment industry and Amazon blindsided traditional retail, this coin is going to blindside traditional finance.”
And this might be a little like jinxing the idea at the moment, but…
“Cathie Wood is even calling for a 7,200% rally by the end of the decade.”
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The deadline that King drops in the ad, “in the next three months,” is based on the idea of there being an “upgrade date” for this “Next Gen Crypto” …
“… an ‘upgrade date’ will revolutionize this coin, potentially sending it 70X higher. Yet, 99% of Americans don’t even know this coin exists.”
The argument for why this “Next Gen Coin” is going to go up seems to be based on a few different factors — that it is seeing increasing institutional interest, as is partly evidenced by the half-dozen big money folks he cites who have publicly endorsed the “Next Gen” crypto here, that the “version 2.0” of blockchain will be better than 1.0 (meaning, this is better than Bitcoin the same way that Facebook was better than MySpace, and will skyrocket accordingly), and that there’s this “upgrade” coming that will make it take off.
So… what’s the upgrade? From the ad:
“… this Next Gen Coin gets a major upgrade that will allow it to crush its competition. You see, one of the major hang-ups is the amount of volume that these coins can handle….
“For example, right now, bitcoin can process about five transactions per second. The Next Gen Coin, currently, can process about 30 per second….
“Visa, for example, handles 1,700 transactions a second. So, right now, the Next Gen Coin is handicapped.
“But, after this upgrade date, after this upgrade, everything will start to change. It’ll have the ability to do 30 transactions, then 300, then 3,000, then 30,000 … and then, a full 100,000 transactions per second….
“50 times the speed of Visa. And, this is key, at a fraction … a tiny fraction … of the cost.”
And he references some of the income you can make from this “Next Gen Coin,” too…
“… if you save your money in this Next Gen Coin, you can make up to 10% a year….
“Because, without getting too technical, it allows you to become the bank.”
And then one final little spurt of hype before we feed those clues to the Thinkolator…
“I said it earlier, and I’ll say it again: Based on my research, we’re looking at the greatest investment opportunity in history.
“Look … Cryptos aren’t just another stock opportunity … like Facebook, Google, or Apple … they’re bigger. It’s an entirely new asset class. This is a once-in-a-500-year thing. It’s like discovering oil for the first time. Or being there when the stock market was created.
“Cryptos have been around for about 10 years, they’re still in infancy. Less than 1% of the world owns them. Can you imagine what will happen when 10% of the world starts using them? 25%? 50%?”
Well, I dunno. What happened when most of the world started having to use the US Dollar to buy oil? Well, if you use the starting point of the mid-1970s, when the Saudis started accepting only US$ for oil trading in the “petrodollar” arrangement, then you would have lost about 80% of your purchasing power by owning dollars. It remained a pretty strong currency, but, like other national currencies, we printed more and more if it so politicians could promise us more and more stuff. It would have been a bit better than that if you kept it in a bank account that paid interest, or even in something guaranteed like a CD or in Treasury Notes, but you still would have lost money over time due to inflation.
How about if you had been an investor in the Visa network early on? If you owned the network, in partnership with the banks who participated, you created tremendous value by charging a fee to move money around, and offering convenience and security and insurance to vastly increase the amount of money coursing through the network. How much of what Visa earned was due to owning the technology of their payment network, and how much was due to the banks who participated in the network investing in building out acceptance and marketing? And who got the rewards? The people who used Visa at either end of the network got convenience and a guarantee of security, but didn’t benefit financially in any direct way, they paid the fees to banks and to Visa and to the people who recruited merchants to use the cards and install the machines… but the network itself certainly benefitted, and grew tremendously, spitting off persistent profits in excess of the cost of creating and maintaining the network, to the point that Visa is now a $400+ billion company. Maybe that’s a better analogy, if the value of the network can be better dispersed to the participants — the value is the network and the platform and the fees it can earn, not the currency itself.
The fact that more of the world uses a unit of currency or a system for transferring value does not necessarily guarantee that every unit of that currency or piece of that system increases in value, though. In order to increase in value, you either need the basic currency to have some scarcity in addition to its utility and appeal — like Bitcoin, for example, which has a programmed-in limit for how many Bitcoin will be minted, or like gold, which has to be found and dug out of the ground at great cost in order to increase the supply… or you need the unit of currency itself to generate profit, to somehow earn money, as in that note from King that you “become the bank” and therefore earn some of the embedded fees that would otherwise be the friction added to transactions by the global financial system.
So yes, the value might go up if this cryptocurrency becomes more widely used, particularly if it either has scarcity value or somehow earns a return based on the size of the user base and the flow of transactions. Just keep that “might not” in mind, too.
What is it, then? Well, sorry to disappoint those who are looking for something brand-new and sexy, but what Ian King is pitching is indeed the second largest cryptocurrency in the world, the Ether token that makes the Ethereum platform run (usually abbreviated ETH). If you have ever dabbled in any kind of cryptocurrency at all, you have probably bought some Ether at one point or another — it was essentially the second cryptocurrency to become popular, and it trades very similarly to Bitcoin — this is the chart for Bitcoin and Ethereum over the past five years:
How does one explain Ethereum? I think of it as a base operating system that runs a global decentralized blockchain — it’s programmable, so it functions as the platform on which a lot of other cryptocurrencies have been developed, and the Ether token (which is also called Ethereum by lots of folks, the terms are functionally interchangeable) is the cryptocurrency that makes the blockchain network effective and safe — different computers on the blockchain do work to validate a transaction on the network and ensure security, which is called mining, and they earn ETH for that work, though now, with upgrades to Ethereum, we’re gradually moving past pure “mining” and “proof of work” as the core validation concept for the Ethereum blockchain and to “proof of stake,” which is more like putting up your capital and less like doing work, so, in concept, it’s kind of like rewarding bankers instead of miners. That’s a lot more scalable, and the Ethereum community is also adding new tweaks to make it faster, including by adding sharding (which is what it sounds like, breaking the blockchain into smaller pieces that can run faster, and somehow re-connecting all the shards to make sure everything stays secure and accurate), so it is becoming a better and more useful platform.
And we’re still talking capitalism here, so we know that bankers always win — so as with pretty much any traditional finance system, the rewards, in the form of what are usually called “gas fees” on transactions, go in part to the people who put up the capital, those who have staked their ETH to be used in validating transactions. That’s why staking your ETH can let you earn something that feels like, but is not precisely, “interest” on your “deposit.”
There’s some inherent give and take there which will presumably straighten itself out over time — right now, moving money around or buying and selling stuff on the Ethereum blockchain is sometimes a lot more expensive than using a credit card or paying regular ol’ bank transfer fees, with costs and transaction speeds that are also often less predictable, but the hope is that those transaction costs will be reduced as the network becomes faster and reduces friction.
Ethereum allows for things like smart contracts to be built into the blockchain, making it more powerful, and lets lots of different crypto projects talk to each other. It has some potential, at least in theory, to be the heart of the next Internet as a core “Web 3.0” technology, offering much better security and stability than the protocols that currently serve as the foundation for global computer networks, though there’s a lot of competition for that from other blockchain-based systems that have come up to solve Ethereum’s problems, much like Ethereum was developed to address some of Bitcoin’s shortcomings.
Bitcoin, on the other hand, is seen by most folks as much more like digital gold — it’s got scarcity built in, which Ethereum does not have, there’s no limit on how much Ether can be created, and it was first so it’s had more time to build trust and acceptance as an asset… but it’s not very practical or fast for use in actual transactions, and it’s not a flexible platform on which other things can be built, like Ethereum.
And what’s the “Upgrade” Ian King is talking about? Well, partly it’s that shift from “mining” to “staking”, both to improve scalability and to dramatically reduce the electricity consumption (doing the complex math work that is at the heart of “mining” and “proof of work” takes up a lot of computing power, “proof of stake” consumes little to no electricity). That part of the Ethereum upgrade to what is mostly called “Ethereum 2.0” has already begun, but the upgrade is happening in stages — the full merge of the new staking network with Ethereum could happen in the next few months, so that’s probably the “upgrade” Ian King is talking about, but other upgrades like the “shard chains” capability that should really speed up Ethereum probably won’t come until next year. It’s a process, and it’s already taken years longer than the Ethereum community expected (originally the idea was that “Ethereum 2.0” might launch in 2019).
Will that increase the value of the Ethereum platform? Well, it will make it faster and more useful for more purposes, so that should increase the value of the technology as a whole.
Will it make each ETH token more valuable? If the whole network is faster, and there is no expensive mining required, maybe, maybe not. I guess that all depends on whether the rewards of “staking” rise or fall, and since there is no automatic limit on the number of ETH tokens that can be created, whether those average rewards per token rise or fall. That’s how I think of the challenge, at least — Ethereum becomes better, and that should in theory mean it becomes more valuable… but if it’s also more efficient, and faster, then maybe fewer ETH tokens are needed to sustain the network, and maybe staking ETH tokens earns a smaller fee, so fewer people want to keep their capital tied up in ETH, and it’s entirely possible that they’ll fall in value.
Bitcoin is generally easier to figure out, because the fact that so much of the reward of the system goes to the miners meant that Bitcoin itself was really, in concept, a way to trade electricity, with the value conveyed by the electricity consumed and the money invested in building ever-faster Bitcoin mining rigs to compete with other miners. Add in the hard-coded limit on the number of Bitcoin that will exist, and you get some kind of theoretical asset value and an artificial scarcity for the tokens themselves.
Ethereum is a lot harder, at least for me. It’s like trying to guess what the internet is worth… but also thinking to yourself about whether that means one “unit” of the internet, maybe each server chip or each optical switch or each gigabyte of data moved from point A to point B, is worth more because the network is bigger. It makes my brain hurt a little.
Which is a long way of saying that I don’t know whether Ethereum will rise or fall in value in the future. The narrative of “Ethereum becomes better and faster, so ETH tokens will rise in value” does have a certain appeal, and there’s probably a decent chance that will carry the day, whether it ends up being true or not.
The value of anything on any given day depends on what someone else wants to pay you for it, and the fact that Ethereum and Bitcoin have essentially traded in lockstep for five years, despite their very different uses and structures and communities, tells you that any effort to overthink the real-world value of one cryptocurrency over another is probably wasted. Whichever one achieves greater popularity among traders will rise the fastest… and a narrative about an upgrade is certainly one way to rise in popularity.
I’ll offer an apology here for any mistakes I made in my description of Ethereum and Bitcoin above, there may be big things that I just don’t “get,” and I’m not a thought leader on crypto or an expert in how they work or how they might change the world, but I think that it’s conceptually a useful way to think about these cryptocurrencies. If that interests you, indulge me as I blather on a bit more.
I do own a chunk of both Bitcoin and Ethereum, much more of the latter than the former, but I also consider all cryptocurrency investments to be entirely speculative. Not unlike precious metals, which are considered a “store of value” far in excess of their obvious utilitarian properties, though I do take some comfort from the fact that the cultural acceptance of gold and silver as “valuable” by most of humanity goes back a couple thousand years, long enough to be somewhat hardwired into human consciousness. The cultural acceptance of Bitcoin as an asset is far newer, going back, at best, to the first Bitcoin trade — which happened exactly twelve years ago yesterday, when programmer Laszlo Hanyecz traded 10,000 Bitcoins for two pizzas in Jacksonville, Florida.
Even worse, we’re not talking brick oven artisanal Neapolitan delights here, the pizzas were from Papa John’s. I don’t wanna offend any Papa’s fans, but that’s no $150 million pizza, inflation or no inflation.
There are thousands of blockchain projects in development, many of which depend on a cryptocurrency as the main unit of exchange or reward that keeps the blockchain working. Many of them have serious projects and serious plans and sound cool and advanced to my non-technical ears, and are founded and run by serious people, with genuine potential use cases that could probably develop into something large and meaningful. They even sometimes have some rational economic thought behind them that might support the value of those cryptocurrency tokens.
But the fact remains that most of the people trading those cryptocurrencies, and therefore setting the price and causing the crazy peaks and valleys for most of these tokens, don’t necessarily know any more about those specific cryptocurrency-fueled projects than the Reddit-inspired crowd of traders knew about GameStop’s balance sheet and cash flow and strategic plan in February of 2021.
Cryptocurrencies are not stocks or corporations, and the tokens usually do not convey ownership of anything real, they generally represent a way to buy into or support an in-development technological platform or network rather than a way to control or own an asset, and the rewards to token-holders are generally based in some way on the growth of the network and are made in those same tokens, so they are tough to value in the best of times (I’d say “impossible,” but that might just be a “me” problem).
Which means that right now, my personal sense is that cryptocurrencies are simply a near-perfect measure of trader sentiment, unburdened by a direct financial relationship to a business or asset and the returns that business might earn. The value is hard to discern, so there’s no “book value” or “cash flow” that provides a foundation to the value of the protocol or network or platform… but that’s also freeing, because there’s also no anchor that keeps the value tied to some real-world financial measure.
I know, I know, everything that trades is valued based on sentiment in any given moment, but in most cases it seems to me that cryptocurrency pricing is based on nothing but sentiment, which means there’s little to nothing standing in the way of any given cryptocurrency rising or falling by 90% in a day if emotions turn. Bitcoin and Ethereum are very much “large cap” cryptocurrencies, so they probably won’t move that fast, mostly because so many people own them, including large institutions, and because they have been around for long enough that there is a level of trust among buyers that they represent some value, but the justifications for current prices tend to be past prices and chart patterns, not the functional economics of the platform or the potential earning power of the token.
When a company’s stock falls far enough, there’s typically a logical bottom because the company owns assets that can be sold, or they post profits that are due to the firm’s owners, or they pay a dividend that becomes high enough, and that cheapness attracts new buyers — the price might overshoot on the way down, but it will settle somewhere if the company is viable. Cryptocurrencies don’t generally have those kinds of “fundamentals” to steady the ship — there’s no particular reason why Bitcoin went from $9,000 two years ago to $30,000 today other than “more people and institutions wanted to buy it, and decided it had value” … that doesn’t mean those people and institutions are wrong, it just means we should remember that crowd opinions about asset value can change quickly. Often much more quickly than the fundamental value of an operating business.
Shopify (SHOP) shares, for example, overshot a reasonable valuation during their rise in 2020, going from being valued at about 15X sales for a couple years to well over 50X sales when they got popular, and that’s the measure of sentiment, the number in front of the X, that multiple that people are willing to pay on the sales or the earnings or the asset value. Now SHOP has fallen back down to 10X sales, and maybe it will fall further, but it also makes a profit and is growing quickly and at some point sentiment and fundamentals will intersect and the sales number or the earnings number will be compelling enough to attract new buyers. I have no multiple to easily apply to Bitcoin or Ethereum or most other cryptocurrencies in that way, it seems to me that it goes up when it’s going up, and it goes down when it’s going down — maybe as staking Ethereum becomes better understood, we’ll see that become the driving force for the valuation of that blockchain, as buyers who want to earn a yield on their cryptocurrency position decide to move into Ethereum when the staking rewards are above a certain level, but we’ll also have to wait and see what the returns look like when staking becomes more widespread and the network speeds up.
There’s rightly a lot of fear out there about huge promises of yield from cryptos, however, since a lot of them seem to be little more than pyramid schemes, without any clear way for the staking yield to correlate to some economic value that the cryptocurrency is creating — maybe that benefits the larger and more established ones like Ethereum, where there’s more likely to be an engine that generates that economic value from the transaction fees, even if those fees fall, or maybe a few high-profile blowups in the crypto world scare investors away for years. Heck, maybe the whole thing turns out to be a house of cards, and all the cryptocurrencies collapse into tiny shadows of the current enthusiasm after the next crash or disaster — I don’t think that’s the most likely outcome, but I’m sure the risk is more than zero.
In the meantime, during times of rapid market movement, large cryptocurrencies essentially trade in line with the Nasdaq 100 — it’s an overgeneralization, but generally the people and institutions who invest in cryptocurrencies overlap heavily with those who invest in technology growth stocks, and when there’s a panic in either it can cause selling in both. Bitcoin has a correlation of about 90% with the QQQ ETF so far this year, which means that it moves in the same direction as the QQQ, and to almost the same extent, almost all the time.
So… if you’re new to cryptocurrencies, Ethereum and Bitcoin are certainly the most common “on ramp” speculations you can make, and they are as different as can be but do trade together most of the time so you’re not risking much by dabbling in either. It’s a fascinating area, and one I don’t understand that well, but starting with a familiarity with those two will make the other crypto projects you’ll read about a little easier to understand. I’m willing to dabble, too, and usually have something like 2-3% of my portfolio in cryptocurrencies, similar to my allocation to precious metals.
Posted by:
Jack Dempsey, President
401 Gold Consultants LLC
jdemp2003@gmail.com