Bitcoin is a risky fraud, according to Jamie Dimon, yet fund managers say it's the most crowded trade out there. It's not the only one: cannabis investments have boomed alongside crypto-currency, despite the obvious risks. The fear of regulatory crackdowns has put a downer on both markets in recent months.
But Dimon may be right about one thing: old-fashioned oversupply will probably cure investors' excitement before regulators do.
Once, virtual currencies and weed belonged together on the dark web; now, they're being pitched as asset classes on track for mega-growth. The hype has already traveled some distance: Bitcoin trades at just under $4,000, and marijuana stocks trade at valuations worthy of biotech start-ups. This week sees the launch of a new virtual currency for marijuana markets, Paragon, fronted by rapper The Game and former model Jessica Versteeg. What could go wrong?
Regulatory risks are the most obvious. Only a tiny number of countries have attempted to actually ban Bitcoin outright, but a slew of regulatory warnings surrounding Initial Coin Offerings—risky and volatile new tokens like Paragon—has dented the price of crypto's grand-daddy and its offspring like Ethereum. And while marijuana has been riding a wave of legalization in the U.S.—despite being still very much illegal at federal level—politicians are giving conflicting signals over where the trend goes from here. Rolling up crypto, ICOs and weed into one investment seems like asking regulators to take a shot at a very large fish in a very small barrel.
But the bigger threat looks like being a very traditional one: too much supply and not enough demand.
Today, there are more than 800 crypto-currencies tracked by CoinCap, and more are on the way. Bitcoin itself split in two recently, with a spin-off called Bitcoin Cash that was intended to improve upon the original—a move that divided investors and exchanges....