While popular TV show host John Oliver admitted that "discussions of any new technology tend to age very badly," and "it is dangerous to make predictions about where tech is going," his recent episode tackled the topic of cryptocurrency, particularly bitcoin, the world's largest digital currency by market capitalization.
Oliver, the host of HBO's "Last Week Tonight," warned viewers about “gambling” with cryptocurrency, indicating that the concept included "everything you don’t understand about money combined with everything you don’t understand about computers.”
He began outlining bitcoin's volatile run last year in which its value exploded from $1,000 to $9,000 by the end of November to nearly $20,000 a month later. Oliver joked that bitcoin blew up so much that paparazzi starting asking celebrities nuanced questions about it. He suggested that bitcoin has value for the same reason anything has value—because people agree that it does. Right now, there's a Beanie Baby going for $15,000 on Etsy, because the owner thinks it is worth that amount, noted Oliver.
The TV host spoke to the concept of FOMO, or "fear of missing out," causing people who otherwise do not invest to get in on digital currency trading after seeing countless headlines about others finding fast, easy wealth, often at a young age. Despite bitcoin dropping by nearly 50% since the start of this year, Oliver suggested that bitcoin millionaires are still fueling a crazy level excitement and curiosity around the market. Amid such speculative mania, it can can be incredibly difficult to tell which companies are the real deal. (See also: Crypto, Cannabis, FOMO Drive New Investor Inflow.)
'Essentially the Wild West'
Oliver went on to explain bitcoin as a decentralized digital currency. As an open-source computer code, backed by blockchain, or distributed ledger technology, there is no bank or government creating or controlling it, which has theoretical advantages such as offering better efficiency and security.
In regards to the security benefits of blockchain-enabled technology, the segment highlights a comment from Don Tapscott, co-founder of the Blockchain Research Institute. He suggested that taking apart the blockchain would be like turning a chicken nugget back into a live chicken, a metaphor that Oliver deemed "really helpful" and "really dumb."
The prospects for enhanced security, efficiency and trust have driven big companies such as Walmart Inc. (WMT) International Business Machines Corp. (IBM) and JPMorgan Chase & Co. (JPM) to all experiment with blockchain as a way to potentially store and share data and transactions in an easy, reliable way, but it is too early on to know what blockchain is capable of, said Oliver.
Despite its prospects, however, "the market is essentially the Wild West and ripe for exploitation," said Oliver, noting that companies that simply add "blockchain" to their name have see share price triple on average. Because anyone can create digital currency, over 15,000 cryptocurrencies have been launched, said Oliver. Often startups sell a coin to raise money as an alternative to raising stock, bringing the total amount raised in initial coin offerings (ICO) to more than $6 billion in 2017. While not all are schemes, many investors are simply buying because others are buying, and not responding to the details of the startups they are funding.
While the market has been manipulated heavily by pump and dump schemes, regulators have been slow to act in the crypto markets. Ultimately, Oliver concludes that crypto investors are not investors at all but rather gamblers, and that this is okay as long as they are aware of the reality. (See also: Bitcoin Will Stabilize, Hit $50K by 2019: Neu-Ner.)
Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns cryptocurrency.