August 14, 2018
What We’re Reading This Week
The SEC has ruled yet again that there is no place in our society for a Bitcoin ETF. I’m not sure how many times they have turned down Bitcoin ETF filings but I know this isn’t the first.
Essentially, the SEC’s position is that Bitcoin prices could be manipulated so they don’t feel comfortable allowing the investment. Admittedly, I am somewhat torn here. I’ve made no secret that I think Bitcoin is mostly silly. However, I still believe people should be allowed to buy silly things. Granted, Bitcoin operates in some dark corners of the financial market but it stands to reason that a Bitcoin ETF would conceivable bring some light to those corners and provide some price stability in spite of (alleged) price manipulation. Loyal readers should note, I don’t necessarily see any evidence of manipulation (beyond the manipulation that any other security is subjected to) in Bitcoin’s price. I think the fundamental premise of the cryptocurrency is its flaw. I feel like crypto advocates have taken issue with modern banking tenants and instead of working to modernize the system, have rolled the thing back to the feudal age.
Look at it this way, if I took pictures of dollar bills and posted them online for people to buy for three cents each, and then went to the SEC and tried to open an ETF, they really should tell me to pound sand. But, what if 2.5 million people bought my pictures and I was selling them for $7,540 each? Should the SEC allow people to trade my pictures in an ETF? Wait, never mind, I see it now, a Bitcoin ETF is still stupid.
I really thought about not mentioning Facebook at all this week but I guess I feel some sort of weird obligation to give it at least a nod.
In case you missed it (how could you miss it?), Facebook stock took the single longest one-day nosedive in history, closing at $176.26, or 19% off its prior value.
There’s a few things to remember here. One, this company had an IPO in 2012 and opened at $38! Even with the decline, that is pretty healthy growth! The price decline cost them roughly $120 billion of market share, which means, they had $120 billion to lose. Again, in 2012, the company was worth $16 billion. So, you know, they will be fine.
Here’s the thing, this is news because of the sheer size of it, but there is a corollary to investing in general. When we are in the midst of a bull market you will regularly see articles mentioning “all-time highs.” Sure, it’s neat to make note of it and I imagine, in financial news it’s sort of like taking a mulligan, but it’s also sort of the point. I mean, the whole idea of capital markets and the economy is that things will be worth more tomorrow. We will always hit all-time highs. Similarly, companies will get larger and larger. Those same companies will sometimes lose a tremendous amount of money in one day and it stands to reason that it will also be some kind of record. This isn’t news because of the loss, it’s news because of the size of the loss.
Some people will still argue that 19% in one day takes that scale into account and they are correct. Again, we have to look at the value increase over the prior six years. It’s understandable that the downside swing would be just as volatile.
And some other stuff:
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