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Case Study: The Slow But Inevitable Conversion Of Bitcoin Skeptics

By Investing.com (Tanzeel Akhtar/Investing.com)CryptocurrencyMay 09, 2018 05:30AM ET
www.investing.com/analysis/the-slow-conversion-of-bitcoin-cynics-200314532
Case Study: The Slow But Inevitable Conversion Of Bitcoin Skeptics
By Investing.com (Tanzeel Akhtar/Investing.com)   |  May 09, 2018 05:30AM ET
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With their meteoric rise and high-profile volatility it's become impossible for financial moguls, economists and governments to ignore cryptocurrencies, perhaps most especially Bitcoin. Over the course of the past year, a number of key market players, some of them eminent investors, have voiced concerns about the asset class, criticized the notion of digital currency and then, eventually, maybe inexorably, come round to some level of conviction on the concept.

Some of these investors, though still critical of the alt-currency concept, have nonetheless at some point—whether knowingly or unknowingly—invested in firms that provide either direct or indirect exposure of some sort to the crypto environment, often via the blockchain technology underlying the asset.

Crypto Adaption: 'The Kübler-Ross' Model

Swiss psychiatrist Elisabeth Kübler-Ross, author of the groundbreaking book On Death and Dying theorized that there were five stages to the grief cycle before an individual reached acceptance. Her five stage model can also be applied to crypto adaption and helps to also define the conversion stages. Ross's model, as applied to cryptocurrency adaption tracks as follows: denial, anger, bargaining, depression (missing out in crypto) and finally, grudging acceptance.

The emotional position of Bitcoin cynics does seem to shift over a short (though in some cases long) period of time. Below, some notable investors, economists and government officials who are clearly moving through different stages of the cycle:

This past January, George Soros joined a chorus of investors at the World Economic Forum in Davos, Switzerland, calling Bitcoin a bubble. Nevertheless, by April 2018 it was revealed that his New York-based Soros Fund Management (SFM) had approved the trading of virtual cryptocurrencies. That's quite a rapid about-face. Of course, it could also be that Soros had no intention laying his cards on the table at Davos, in order to get in quietly before prices might jump after it was revealed that he was interested in the burgeoning asset.

Jamie Dimon, CEO and Chairman of JP Morgan Chase (NYSE:JPM) was even harsher on Bitcoin. In September 2017 he pointedly said,

“It’s a fraud. If a JPMorgan trader began trading in Bitcoin I'd fire them in a second. For two reasons: It’s against our rules, and they’re stupid. And both are dangerous.”

However, during an interview with the Fox Business network this past January 2018, the Dimon backpedaled—rather vigorously:

“I regret making comments saying Bitcoin is a fraud …The blockchain is real. You can have crypto yen and dollars and stuff like that.”

One reason for his reversal could have something to do with a piece of news just revealed by the US Patent and Trademark office. Back in October, JPMorgan applied for a patent related to blockchain technology.

During his annual shareholders meeting last Saturday, the Oracle) of Omaha, celebrated investor Warren Buffett, chairman and CEO of Berkshire Hathaway (NYSE:BRKa) had this to say about Bitcoin: it’s, ”probably rat poison squared.” It's not the first time he's openly disparaged the cryptocurrency.

In October 2017 Buffett called Bitcoin a bubble and added: “People get excited from big price movements, and Wall Street accommodates …You can’t value Bitcoin because it’s not a value-producing asset.” Still, whether he wants to openly acknowledge it or not Buffett is already invested in the technology behind the alt-coin Ripple (XPR) via a number of his bank holdings, in particular Bank of New York Mellon (NYSE:BK) which are interested in distributed ledger technology for their global payment systems.

There remain, of course, a fair number of active crypto skeptics, who continue to deny the value investors might derive from the asset class. Respected American economist Nouriel Roubini has been vehement about Bitcoin. In a strongly worded article published by The Guardian in early March he wrote:

“It's the mother of all bubbles and...also the biggest bubble in human history if you compare it to, say, the Mississippi bubble or the tech bubble or tulip mania or South Sea Bubble

... Now it has crashed by about 60 percent compared to the peak of mid-December. It has crashed 30 percent in the last week and 10 percent today, and ... the fundamental value of Bitcoin is zero.”

He's also dismissed blockchain technology, calling it over-hyped.

But Roubini might just be part of a shrinking group. More and more individuals are on the fence now, shifting between between stages as they potentially head toward acceptance. For example, former Chairman of the US's Federal Reserve, Ben Bernanke warned:

“Bitcoin is an attempt to replace fiat currency and evade regulation and government intervention. I don’t think that’s going to be a success.”

Despite his disdain, Bernanke has admitted he's bullish on blockchain even if has mixed feelings about Bitcoin, having given both muted praise and criticism for the currency as far back as 2015.

Scott Scheper, head of marketing, XYO Network believes that whether they like to not, as time passes just about every single investor will have some exposure to cryptocurrencies whether or not they realized it or publicly decry it. Here’s why: When a technology surfaces that solves fundamental problems for consumers, it's inevitable that, in the end consumers vote for adaption if they can profit or benefit.

So could it be we're seeing a gradual conversion? Are all these skeptics destined to eventually come around? And if Bitcoin is a bubble, what lessons can investors learn from previous market bubbles such as the DotCom mania that gripped markets in the late '90s?

Buffett’s DotCom Boom Error

Scheper points to the way Buffett operated during the DotCom Boom. The celebrated investor is famous for focusing on his core competencies, investments in companies whose business—and products—he understands. Companies such as Coca Cola (NYSE:KO), Apple (NASDAQ:AAPL), Bank of America (NYSE:BAC), Southwest Airlines (NYSE:LUV) and insurance businesses such as GEICO.

“During the DotCom Boom, Buffettavoided investing in Internet companies, partly because he’s a fundamentalist who doesn’t use a computer at the office, and largely because he just wasn’t interested in trying to understand the underlying technology. This cost him to miss out on investing in Google (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN), even though he was approached by the founders of both to invest in the companies.”

At the 2018 Berkshire Hathaway annual shareholder meeting last week, Buffett openly admitted his error: “I made the wrong decisions on Google and Amazon.” Even though, at the time he saw the incredible amounts of money his subsidiary GEICO was spending on Google advertising, and even after meeting with the company's founders, Larry Page and Sergey Brin, Buffett ended up passing on the opportunity to invest.

He learned his lesson, though. In March Buffett announced that Berkshire Hathaway had bought 75 million additional shares of Apple, for a total holding of 240 million shares or 5% stake in the computer and smartphone giant.

Scheper believes it will be a similar trajectory for Buffett and cryptocurrencies. Whether he invests in digital tokens directly or takes a visible stake in companies that have some involvement with blockchain technology, it's simply a matter of time. Indeed notes Scheper, for any savvy investor—and there's no arguing that Buffett has proven he leads the pack in that regard—investing in this new asset in some way, shape or form is inevitable.

Case Study: The Slow But Inevitable Conversion Of Bitcoin Skeptics
 

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Case Study: The Slow But Inevitable Conversion Of Bitcoin Skeptics

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Comments (5)
Ofonime Inua
Ofonime Inua May 11, 2018 7:00PM ET
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Yes.you are very skillful in your analysis.
Robert ONeil
Robert ONeil May 09, 2018 6:43PM ET
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A Vary Good Read ,
HC Carr
hcarr May 09, 2018 10:58AM ET
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An essential part of managing your economy is being able to manage your currency. No government on the planet would cede control of their currency management to an unknown entity which is why non-governmental crypto would fail. Wall Street is getting involved to put on the biggest short known to man..
Russell Calkins
Russell Calkins May 09, 2018 9:27AM ET
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The fundamentals for Bitcoin is that it will go to $1000. Then to $0. Most all Govt. will have their own Crypto  and others will be illegal. . On the Technical side... Sell Bitcoin $10092.7 Buy at $7647.3
Gino11able .
Gino11able . May 09, 2018 9:27AM ET
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Ah, sorry Charlie. SEC Commissioner: “Technological Progress Should Not be Bound by The Limits of the Regulator’s Lawyerly Imagination” https://www.trustnodes.com/2018/05/09/sec-commissioner-technological-progress-not-bound-limits-regulators-lawyerly-imagination
Game Lover
Game_Lover May 09, 2018 9:27AM ET
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Nobody will care government issued crypto because that would be centralized and controlled by the governments and as such same as fiat money. People like Bitcoin (and othet cryptos) because they are decentralized and nobody can control them. By the way I am sure Bitcoin will be 100 000 sooner than 1000.
Bill St
Bill St May 09, 2018 8:13AM ET
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I'm the first to admit to the incredible potential of blockchain technology, and there are already quite a few exciting applications out there that promise to make great use of it, but as far as investing in tokens like bitcoin... I'm definitely siding with Warren Buffet: this is pure, unadulterated gambling, and except for the people who got in the game very early on, the people who're buying bitcoins/eth/ripple with hard currency today are going to regret it big time in the near future when most of their value goes in flames, as there is literally *nothing* tangible to shore up their value except for the shared belief that they're worth something.
Merc Tou
Merc Tou May 09, 2018 8:13AM ET
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Bill St - “There is nothing tangible to shore up their value, except the shared belief that they’re worth something” Gold Diamond US Dollar Euro Bitcoin Is applicable to everything innit? “Value” only exists in people’s mind. So any other argument to offer?
Russell Calkins
Russell Calkins May 09, 2018 8:13AM ET
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Well said Bill
Larry Back
Larry Back May 09, 2018 8:13AM ET
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If a war broke out between Israel and Iran, which would people prefer between gold and Bitcoin?
Dylan Barton
Dylan Barton May 09, 2018 8:13AM ET
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Bitcoin. I can transfer 1 million dollars of Bitcoin to a separate country a lot faster, easier, and more securely than I can transfer 1 million in gold
Bill St
Bill St May 09, 2018 8:13AM ET
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Merc Tou  Nope, you're dead wrong there. The value of precious metals is derived from their very real use as commodities in different industries (jewelry, electronics, drilling, semiconductors, etc...), and there is pretty little evidence at the moment that those applications are going to go out of favor any time soon, so even though their prices can and do fluctuate over time, their value is unquestionable.And fiat money is worthless by itself, but unlike Bitcoins there are governments that back up their worth with gold reserves, foreign currencies, and other assets. . I'm looking at cryptos from the sidelines, but it's pretty clear to me that as soon as speculative money starts moving elsewhere (and we've had a taste of that in Q1-2018) the value of many (most?) crypto tokens will plummet at terminal velocity, and unlike equity bubbles this time the bagholders are not even going to have the luxury of waiting a few years for the price to recover.
 
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