Now everyone’s an expert


While everyone knows that markets go in cycles, nobody knows the precise timings. Some of the smartest minds on the globe using the most powerful computers are always trying to figure this out. Jeremiahs predicting collapse and doom issue their warnings year after year until finally, as of course it had to be, they are proven triumphantly right.

But perhaps the best bellwether comes when it can be said, as a US stock market journalist wrote of the huge surge of investment by Joe Public shortly before the October 1929 Wall Street Crash: “Now everyone’s an expert.” Given that even professionals can rarely call the market, what hope is there for the tenderfoot?

This week, as the Bitcoin pseudo-currency headed through the $10,000 value mark, one of its investors enthused that there was no reason for alarm, even though a Bitcoin had only been worth $1,000 at the start of this year. “Look at the $450 million just paid at auction for Leonardo da Vinci’s Salvator Mundi,” he said, adding, a little pompously that “price discovery is what the market is willing to pay”.

There is, of course, only one Salvator Mundi. There will supposedly never be more than 21 million Bitcoins issued - at the moment it is said that there are 12.5 million in circulation. The Leonardo exists. It is a slightly damaged oil painting on board. The prices in the international art market in old masters may collapse but the Salvator Mundi will not disappear.

The same cannot be said about the pseudo-currencies of which Bitcoin is the most prominent and apparently highly successful example. National currencies are guaranteed by central banks. They are also “accountable” in that central bank annual reports show the amount of currency printed, inflation, economic trends and a host of arcane calculations. On top of this, there are the policies publicly pursued by a government that can give an idea of how eager or worried foreign investors will be to hold and trade in that country’s currency.

There is absolutely nothing underpinning the value of a pseudo-currency, except the nonsense talked by the new experts of this market. It is mostly kept up by the hot air of ignorant enthusiasm. But somewhere in there are the canny investors who are moving in and out of Bitcoin exploiting the gullibility of newcomers. Like the 17th century European “tulipmania” which saw a single bulb sold for some $60,000, immense value is being ascribed to something of negligible inherent worth, purely on the basis that if someone was prepared to pay “x” then clearly someone else would pay “x+1” or many more times its current value.

It is not simply the triggering of the observation “Now everyone’s an expert” that can be marking the top of this market cycle. The other clue is when people start talking about “new paradigms”, when they start to explain that the current bull run is not like any previous upward surge in market prices. Its advocates have said that Bitcoin was founded because of the failure of central banks to cope with the worldwide consequences of the 2007 subprime crisis, as a more efficient and secure means of payment settlement. Its detractors may be thinking Bitcoin is like the Salvator Mundi but without the bit of wood and the oil paint.