Posted in Cryptos
The following article covers a token or element in the cryptosphere. The cryptosphere is new and exciting, but changes rapidly and often in ways that do not benefit users. By the time this article is published, changes may have already occurred. Most tokens in the cryptosphere are complete scams that are get-rich-quick-schemes for insiders. Often, we cannot know this beforehand and only later discover this. A person should only trade with money that they’re willing to lose because losses are guaranteed. If you choose to participate in purchasing a token in the cryptosphere, you should do so with the full expectation of a loss and you should also expect it to change in a manner that does not benefit you. There are very few good ideas in the cryptosphere. Finally, by reading this post, you agree that you’ve read our disclosure.
When we first wrote this article, we had seen several patterns with crypto-tokens which followed a specific pattern. Since some of these projects were new at the time, their similarity to other projects seemed suspicious. Over time, we have realized a few patterns about these, which may be concerning, but do not necessarily mean they are pump-and-dumps; reality is stranger than fiction. One could argue by looking at a graph that natural gas is a pump-and-dump, yet it’s a very cyclical market. One must be careful to distinguish cyclical from pump-and-dump; the latter may follow the below behavioral traits. One could also argue that many items on this list apply to other things, like stocks, commodities, etc and this is true – pump-and-dumps are not unique to the cryptosphere. In addition, we’ve updated a few of these and added a few as well, while keeping the title the same due to links.
When we first wrote this article, SteemIt provided an example of this more than any platform that existed. When the price of Steem rose above $4 in its beginning, you couldn’t find a single person that cared that the token had 100% inflation. I know because I kept telling people this and pointing out that it’s price was hyped. No one listened. Since then, Steem crashed over 95% in value, and eventually changes were proposed to end this. In fact, we wrote the best article on the internet covering SteemIt and no one has come close to being as accurate as we’ve been. Yet, no one acknowledged this as the price was rising, even though there was no value.
SteemIt, in its beginning, relied on the greater fools theory – the idea is that most people don’t really grasp economics or how it affects them. The SteemIt team dismissed their 100% inflation at the time and claimed it helped distribute the Steem; in reality, inflation hurts the people with the fewest resources, not the inverse. However, the team at SteemIt either didn’t know basic economics, or hoped others didn’t.
Assured by the SteemIt team, some people put a lot of resources into SteemIt (and took massive losses) while insiders were able to power down and exit the platform – a pattern we note in our early post and video. I even pointed this out to an audience while talking with my buddy Fred that insiders appeared to be taking massive power downs. The late buyers pushed up the value of Steem for early buyers to exist. Consider that there were people dropping $100,000+ buying Steem at $3 and $4 thinking that it would go to $100. How? It has 100% inflation a year forever! Greater fools don’t know how or why it rose as high as it did in the past, and they won’t understand when it temporarily rises again.
“Greater fools” will always exist and some people find it ethical to make money off these people. From my own ethical standpoint, I choose to warn people, but also understand that most people won’t listen. Like in the case of Synereo and SteemIt, the message is usually received later. Luckily for you, you read this site and have either listened to our warnings, or learned the hard way and are now listening. But many won’t and this is a reality of all markets. It should be of note that SteemIt has abandoned this 100% inflation model, though I would advise caution with the platform. Between significant misinformation and poor economics, this platform should be treated with extreme caution.
In the past, we thought this showed a pump-and-dump until our analysis showed otherwise. To explain this pattern, we’ve observed that many people in the cryptosphere will place a market order for a token. Never place a market order, as it is simply buying at whatever price is available. Many people buy a token with the intent of selling it for many multiples the purchase price, expecting this to come much later in the token’s history. For example, suppose that Jack buys 500 Dash for 1 bitcoin; he may place a sell order for 100 of those Dash at a ratio of 10 Dash per 1 bitcoin, thinking that this will happen in 10 years. He is not expecting this to occur immediately, but if someone places a market order, they are essentially saying, “Get me whatever is available!” If Jack’s Dash are the only Dash available, then the market participant will pay the high price. Again, never place a market order.
BitShares provides a great example of a token that heavily uses social media to misinform – I’ve caught numerous pumpers of BitShares pretending that the supply wasn’t inflating. For an example, when I first heard of BitShares, I started to track its supply, as several social media writers (who disappeared – another warning sign) kept insisting that it was deflationary in that BitShares’ supply got smaller. Yet the opposite occurred. Were these social media pumpers intentionally lying and hoping that people wouldn’t notice? When I began to point out that their information was incorrect, they disappeared. BitShares is not a deflationary token; since I started measuring its supply, it has increased a significant amount.
Another warning pattern with Bitshares is that it offers tools like bitUSD, which are supposed to be fixed to the dollar. They offer the same with gold, silver, etc, yet none of their products even remotely match the price of dollars, gold, or silver when you look at their history. Once again, I pointed this out to the people hyping their products on social media and many of these people disappeared. Did they know the truth, or were they fooled too?
Warning: If you want to own gold or silver, stick with real gold and silver, ETFs, or use DGX.
BitShares appears to use social media to misinform, or the people who follow their projects are absolutely clueless – from describing their tools to their economic model – these people don’t have a clue. I caution people that BitShares may pull a SteemIt and completely change their economic model, but like SteemIt, this may be a concession that the team didn’t know what they were doing in the first place (or worse).
Even with the token that I like the most as far as innovation – Dash, I can still list some possible problems with it:
I’ve also made it clear that I would not buy Dash at any price – a pump and dumper won’t write that at all – they want to convince you that any price is worth it. If someone can’t list flaws, do not trust them. Everything – including gold – has flaws.
Pumps and dumps will do one of two things when people start to ask questions:
One of my favorite examples of this was SteemIt’s claim that SteemPower was like equity in SteemIt when it first started (they’ve later changed the definition some). This is the funniest claim I’ve seen in the cryptosphere at this point, yet people fell for it. At the time, Steem had 100% inflation a year and SteemPower had 5% inflation a year provided that a user earns at the same pace he started (improbable over a long period of time), but given the former, the latter had the same low value that the former has. When pointing out that SteemPower is nothing like equity at all because true equity is holding the same value in a company that should increase over time by holding it, the answers suddenly shifted to “it doesn’t matter” or “well, it’s like equity” or “look, inflation isn’t a bad thing” or something worse. The reality is that none of these people understood economics, or they were using other people’s ignorance of economics to rip them off.
Ask simple economic questions and watch their responses carefully. Anything that sounds incorrect is probably incorrect. Simple economic concepts like inflation, sustainability and productivity cannot be ignored or dismissed as unimportant.
We may own bitcoin. We may own gold. We may own Renminbi. We may own stocks. We don’t have to pick one of these; we can and will own whatever we want. Anyone who says one is better than the other is either ignorant or a liar – they each have their periods when they will do well – or as Solomon said, “There is a time and place for everything under the sun.” Even a Ponzi scheme will have a period of success – early in its existence.
Pumps and dumps always try to convince fools that there is no better alternative ever. This will never be true; at any given point, there may be many better alternatives. This isn’t just limited to tokens here; even with stocks, a stock can be cheap or expensive at any given moment and there’s no reason to hold onto an expensive stock, or sell a cheap stock. Investing isn’t about good or evil; it is exclusively about what works.
Whether ignorance or deceit, a pump-and-dump will manipulate people by emphasizing that their community is growing. In general, growth of a community does not make the community sincere. I raised goats and sheep as a kid and they do things as a community which are often wrong and completely stupid; humans are no different. To a certain degree, we are of the view that all of these tokens are complete scams since that seems to be the safe view, but if any of them do last, they will last because they fundamentally solve the user’s problems, not that they have a growing community.
A seed has intrinsic value because you can solve your hunger problem with it, among many other uses. Many of these tokens have very little use cases. For the record, this applies as much to bitcoin as any other token; if bitcoin does not innovate in a manner that provides a multitude of use cases, it will cease. But a community does not validate a use case; more people joining a community may just be hoping to get-rich-quick or may be deceived into something else. Again, humans are as dumb as sheep and goats – they run together without really understanding why – a great example of this was Zcash; no one really knew why they wanted it, but everyone else wanted it and Zcash crashed over 99.99%.
One of the writers of FinTekNeeks is a contrarian trader; contrarian traders often excel in games like chess because they think by the next-step, and sometimes even further steps (like what happens after what happens after what happens – 3 steps ahead of the current moment). Most people do not do this, in the same manner that sheep and goats do not do this. Even Jesus Christ noticed this about humans – he compared us to sheep. Thinking like this involves work and most people try to minimize the amount of work that they do each day. Contrarian traders, however, can make bank very quickly because they’ll often take short or long positions based off of misguided communities (The Big Short is a book about contrarian traders and trades). Let us remind our readers: a community does not validate an idea. In fact, the more people in a community, the more misguided it might become.
While this combines some of the above traits, this also stands out on its own. Many tokens – including bitcoin – like to pretend as if wisdom has no value, but the token does. With bitcoinaires I see this in their arrogant attitude that they can survive anything, which almost always sets up a perfect short opportunity. For an example, this was a great short opportunity and can you tell why? Wisdom states that “pride goes before a fall” while these communities pretend that “this time is different.” This time is not different; there is absolutely nothing new under the sun – everything that happens is a repetition of events that have already happened with a few variables that have changed.
One of the funniest parts of observing this community has been the clueless assertions about history and philosophy. As the above examples show, some projects have tried to convince their community that inflation doesn’t matter, even though history shows the complete opposite – especially inflation levels of 100% a year. Another trend that violates history is projects which try to censor, block, or limit criticism – many dictators have tried the same only to see their empires fail later. Even bitcoinaires love to pretend that history doesn’t matter, and yet it does. A simple glance at history would have shown that bitcoin’s scaling debate would result in many years in wasted debate, even if its finally resolved. Bitcoin, like Ancient Greece, lacks a strong governance structure with input from people who have something to lose. Is Ancient Greece still around? No, and bitcoin may not exist in 100 years either.
Wisdom can be ignored, but whatever is ignoring it may not last very long.
We highly advise against participating in the cryptosphere, including bitcoin, because of the following areas of concern. We do acknowledge that a project may do the above activities and still be legitimate in the long run, in the same manner that a project may do none of this and be insincere – that’s the challenge about reality. The vast majority of these projects are not legitimate, if any of them turn out to succeed. In addition, we’ve seen many better ideas outside of the cryptosphere which may indicate that this industry may not be around in the future, unless it continues to remain relevant in the future. What we do know is that if any of these projects remain in the future, they will only remain because they solve problems for their users.