It seems to be a weekly or even daily occurrence now. The financial news reports yet another new cryptocurrency that has been launched and now has a market value of billions of dollars.

This morning we read of a new crypto that had a market value of $45 billion shortly (hours) after its recent launch.

What is a crypto currency? We are not sure.
Why does it have any value? We can’t see why it would.

A crypto currency has no assets (tangible or intangible), produces no goods or services, has no revenues, profits or earnings, pays no dividend and does not serve any purpose not already very well served by the U.S. dollar and the vast electronic payments infrastructure already well-established and essentially frictionless. It is not backed by any entity such as a sovereign country. Unlike the rock-solid stability of the dollar, crypto prices fluctuate wildly. A dollar today will be worth a dollar tomorrow and next year. Sure, inflation slowly erodes its purchasing power, but that is a different issue. Stability is the main attraction of an actual currency like the U.S. dollar.

Will merchants accept crypto’s?
Some will but those who do will effectively be speculating on the price of the crypto currency. For example, if a car dealer sells a car and accepts a crypto currency as payment, the car dealer now holds a currency whose value may be wildly different as early as the day after the sale of the car. That may be fine as long as the crypto appreciates in value. However, what if the crypto depreciates sharply between the sale of the car and the moment when the car dealer needs to convert the crypto to actual cash? The depreciation of the crypto could wipe out his profit margin or potentially cause a loss. Adding this element of uncertainty to any business operation is not likely to be welcome over the long term, especially when accepting crypto’s as payment is causing losses. Right now when everything crypto seems like a sure path to riches, merchants accepting crypto’s are clearly expecting them to appreciate. That assumption is painfully naive. After a few merchants take a beating holding crypto currencies, they will quickly return to the safety and certainty of transacting in U.S. dollars.

Crypto’s certainly have their enthusiasts. And like true believers everywhere, they don’t like their worldview challenged. Crypto promoters like to make grandiose statements like “crypto’s are the future of currencies.” We’ll see. Some will get out before the collapse without losing their shirt. Many more will suffer devastating losses.

From the perspective of this 41 year capital market veteran, crypto’s have the feel of a scheme or scam or manipulation. With no intrinsic value, their only value—ephemeral at that—is set by the market which is notoriously fickle. Unsupported by any tangible or intrinsic value—like revenues or profits—crypto valuations rest upon nothing but hot air and the constant promotions of the true crypto believers.