By Jamari Mohtar
Across the Straits
Focus Malaysia | Jan 6, 2018
The crypto mania of 2017 has spewed a number of interesting acronyms and terminologies. Here’s my version with a twist of humour.
Enter the FOMOs…
First, you have the FOMOs – the folks who have the fear of missing out on the cryptocurrency boom. They were initially fence sitters who didn’t believe in cryptos because they were very much influenced with the talk of an epic bubble that’s about to burst.
When bitcoin hit a new high of USD 1,400 (RM5,627) in May, and then USD 2,000 by month-end, followed by USD 3,000 a few weeks later, the fence on which the FOMOs were sitting began to shake uncontrollably.
But very soon, the movement of their fence stabilised when during one of the correction windows, bitcoins dropped by more than USD 300 in just one hour (some smart alecs then thought it was a drop to USD 300).
By the time the bull’s summer of content set in, when bitcoin rocketed to USD 8,000, the FOMOs had already fallen off the fence and were embracing the midsummer crypto love affair.
They demanded an explanation from their advisors who were the fund managers and editors of investment advisory newsletters on why they failed miserably to recommend them to add cryptocurrencies on their menu of investment portfolios.
Here Comes the FOLOs…
This gave rise to the FOLOs – the fear of losing out folks comprising fund managers and editors of investment advisory newsletters who then started to run helter-skelter to include cryptos in their investment coverage after gloatingly expounding on the gloom and doom of investment in bitcoins.
The fear of losing out their clients and subscribers to the cheer-and-boom crypto fund managers and newsletters has forced these FOLOs to make a U-turn on bitcoin by ramping up the virtues of the underlying distributed blockchain technology behind the creation of bitcoin, as the reason for the meteoric rise in the price of cryptocurrencies. I thought only well-known politicians are famous for making a U-turn.
One Singapore-based FOLO, after poking fun in July on Bitcoin as being no different from his own brilliant money-making idea of baking special recipe cookies that are unique and impossible to replicate because it’s handed down through the generations via some sort of cryptic codes, had to admit in November that investments in cryptos have returns far higher than stocks in 2017 alone, perhaps even better than the return on his coded cookies.
A mad rush to issue special reports on cryptocurrencies ensued among these FOLOs, which was actually a sale gimmick to introduce crypto funds to prevent the exodus of their clients and subscribers to the cheer-and-boom crypto fund managers and newsletters.
And what they have to offer via these crypto funds is some sort of derivatives with cryptos as the underlying asset, which seems far riskier than investing directly in cryptos.
Remember the sub-prime mortgage – the housing loan derivatives that had brought the US economy to its knees and spread to all part of the world, igniting the Great Recession of 2008? It seems that the lessons of 2008 didn’t sink in with these FOLO folks.
By early December, the bull’s summer of content became the winter of content when Bitcoin hit one mighty high after another – from USD 10,000 to USD 15,000 and finally USD 20,000 in a flash of lightning.
This was quickly followed within a few days later by the emergence of a bear’s winter of discontent when bitcoin fell to below USD17,000 and then USD12,000 and finally USD10,000, all in quick succession.
The result: Both the FOMOs and FOLOs are now contemplating joining the FOBs and the FOMS-es. After all, if you can’t beat them, join them!
Epic bubble of the FOBs
The FOBs are folks that have a fear of bubble syndrome. One group of FOBs is the Nobel Laureate economic professors. This also includes the second rate non-Nobel Laureate professors whose pronouncement on cryptos sounded as if they too have a Nobel Laureate.
They seem to forget that what is important is not so much the bubble, which can stretch for a number of years without any damage to the economy but rather only one particular year when the bubble will burst.
Hence, they should revisit the drawing board and come out with a better forecasting technique to determine the year the bubble will likely burst, instead of being a pain in the neck of the FOMOs by their premature repetition ad nauseam of the word “bubble”, thus depriving the FOMOS the opportunity to improve their financial condition through a small, decent investment in cryptos.
I would suggest the following pointers to the FOB folks:
- Go back to the economic history book to discover that the first bubble ever recorded in history – the tulip bulb mania – occurred when futures trading made its debut in the sale of tulip bulbs. About a year or so later, the bubble burst.
- In the second case – the dotcom mania – talk of a bubble gained momentum in 1997 and over a period of three years, shares of internet companies continued to reach new highs (on average an increase of 500%), until they reached an all time high in late 1999. Then the bubble burst. For companies that survived the crash, Amazon for instance, the all time high of USD106.69 on Dec 1999 was only repeated and breached 10 years later in 2009.
In the case of bitcoin, talk of a bubble gained momentum in 2013. But 2013 was not the equivalent of 1997 for the dotcom bubble due to:
- Bitcoin reached its then all time high of USD 1,200 in Dec 2013 – the same year bubble-talk gained momentum, not two years later as in the dotcom mania when the ultimate high was reached.
- In May 2017, this all time high was repeated and breached – in 4 years’ time not 10 years as in the dotcom crash.
Thus, the crypto bubble did not burst after 2013. It was just a major correction of bitcoin from 2014 to 2016. The fact that bubble-talk gained momentum again in 2017 reinforced the notion that the bubble-talk of 2013 was premature. So it’s 2017 that can be considered as the equivalent of 1997 in the dotcom bubble.
This would mean bitcoin price will continue to rocket in the next three years until it reaches the ultimate all time high of a 500% increase in price by 2019.
With the current price at about USD14,000 on New Year’s Eve, an increase of 500% over the next three years means bitcoin would have had to reach for the ultimate all time high of USD 84,000 in 2019 before the bubble burst.
This is a simplified attempt to arrive at a ballpark price where a bubble will burst. The Nobel Laureates with superior resources and funding can do better, including improving the accuracy of the margin of error in their forecast.
But all bets are off if bitcoin repeated its 2013 pattern, which means the ultimate all time high of USD 84,000 could arrive much earlier as in this year. It is not for nothing that I have often said bitcoin and cryptos are new animals.
In my next article, I will attempt to elaborate on how cryptos could play a stabilising role in the economy. I would also reveal who the other group of FOBs is and who the FOMS-es are.
Jamari Mohtar is a veteran journalist who used to live and work in Singapore. Comments: firstname.lastname@example.org