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Investment Competition is Everywhere

by Alan Daniel

Everyone wants to jump into markets where returns substantially exceed the cost of capital. We know that booms in different emerging markets take place due to the principle of potential excess returns. Investor frenzies were seen in trends in many markets. A few of these would have real use in society, and others were mere speculation. It is seen such events as the tulip bubble, in the railroad industry in the 1800’s in the United Kingdom and the United States, and further domains.

We can also notice similar speculative euphoria’s in the rise of the telephone business; an area that was first seen as a novelty and was shrugged off by initial investors. Financiers and skeptics changed their minds. They became bullish on the marvels of the telephone industry after seeing the returns on capital and success of companies such as the Bell company (now AT&T).

Alasdair Nairn comments, “within three years, 125 companies were launched, and over the 17-year period when Bell’s invention was supposed to be protected by patent, more than 1,700 telephone companies were formed. Some were genuine challengers to Bell, but most simply set out to violate his patents. Many companies tried to take advantage of the euphoria surrounding the telephone and take money from the investing public.”

Companies rushed to raise large sums of capital, and only a few actually created a telephone enterprise. Many were full-blown scams and had no business being in the telephone industry. A significant percentage of these companies would be value destructive, contributing nothing to society.

A few charlatans went as far as laying claim to Alexander Graham Bell’s patents, implying that the patents were theirs (hi, Craig Wright). They would note that they were the genuine inventors of the telephone to no avail. False inventors would rise and take to the courts, destroying even more value that could have been allocated to investments in telephone infrastructure and communications technologies.

Fast forward to the 1990s.

The Technology Boom

Many companies rose up to grab capital and (possibly) provide real value to society. Investors (speculators) couldn’t get rid of their money fast enough. Entrepreneurs went wild and quickly came up with ideas and captured investments as soon as possible. We saw companies like Amazon, eBay, and Webvan.

A portion of these dot-com companies would last. Most would close, restructure, and fold into other companies.

The dot-com enthusiasm would dissipate as quickly as it came about, and investors (that came in at the top) would get kicked in the chin.

Venture capitalists such as Bill Gurley, Benchmark, and notable funds would see massive returns on investments. Those who invested early had a strong thesis and knew why they were investing in individual companies likely did well.

Fast forward to the latter half of the current decade.

Bitcoin Frenzy

Bitcoin prices shot up in 2017. Investors who believed in the thesis early on saw massive gains.

People like Galaxy Digital’s, Mike Novogratz, and CZ from Binance, who not only invested in cryptocurrencies early on but would then transition to creating crypto companies, saw substantial success.

Charlatans and swindlers would take many investors for their funds.

Schemes such as BitConnect, and countless others would serve no purpose but transfer capital from yield thirsty investors the creators of these schemes.

False Satoshi’s arose, the likes of CSW, and others would halve value.

The masses would sour on cryptocurrency and still have qualms on the asset class.

But Bitcoin still thrives today.

It has created value and more interest around the blockchain and the idea of money.

Bitcoin has brand value, market acceptance, and a growing community of supporters that range from institutions to prominent financial analysts and traders, to countries and politicians that have expressed support for digital assets. Themes such as it being digital gold, pseudonymous creators, longevity, history, and other factors provide more weight to bitcoin.

The need for the leading digital asset remains true in an increasingly digital world.

It serves a purpose, and companies such as lenders are building around it.

Remember, just as in other areas where competitors saw a potential for personal enrichment, rushing to create companies before withering away, the cryptocurrency industry experiences the same.

The leading networks and assets with real value will remain while the many poseurs die out.

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