Bitcoin: The True Fraud – Winklevoss Bitcoin Trust ETF (Pending:COIN)

The ICO (initial coin offering) fallout will create a buying opportunity in cryptocurrency, which should be exciting for investors who have been looking for a chance to buy in. I believe there’s a lot of fraud going on in the ICO market. There will be fallout here and the SEC will have to take a hard stance. I believe that will cause fear in the cryptocurrency space, but won’t break the industry. Instead, it’ll create another buying opportunity.

Right now, ICOs are the wild west, basically digital coins and tokens being sold to investors, all of which are completely unregulated. The blockchain will upend the way we do payments and transactions, especially on the backend with trades and settlements. Basically companies, or individuals, make promises to deliver something and investors buy into these tokens/ICOs, which can be used only for the thing promised. But there is no accountability for being delivered these goods or services. It’s a breeding ground for fraud. Josh Brown has a great analogy of what an ICO really is … “Think about ICOs like you would think about the tokens at Chuck E. Cheese. You put dollars into the machine and it spits out tokens into a plastic cup, which have a value at Chuck E. Cheese because they can be used there. But they have zero value once you take them out of the germ-and-pizza-emporium. Can’t use these tokens anywhere else – so if Chuck E. Cheese goes under, you are holding something worthless. The same would be true of an ICO – if the company doesn’t make it, you bought an unregistered security with no recourse or ability to recoup anything.”

But don’t confuse Bitcoin with ICOs. Bitcoins are actual coins and not tokens. They have completely different purposes and applications.


The key is not to invest more than you can truly afford to lose. And bitcoin shouldn’t be a passion investment. When the narrative changes, be flexible and change positions according. For investors that want to buy bitcoin, it can be intimidating. Investing in the Bitcoin Investment Trust (OTCQX:GBTC) is not the right answer. Rather, there are a few underrated opportunities for those investors looking to stick to public markets.

There are still young and unproven companies where the risk-reward opportunities could prove very asymmetrical. While the entire cryptocurrency market cap is well over $100 billion, realistically, there’s only a handful of public companies that provide exposure to the market. John McAfee’s MGT Capital Investments (OTCQB:MGTI) is one of the largest, with a $100 million market cap. Shares of MGT are up 25% in the last year and has become a bitcoin mining company that develops cybersecurity products. Unlike most cryptocurrency companies, it actually has a positive book value. The company is also actually making revenue on bitcoin mining.

There’s also UBI Blockchain Internet (OTCQB:UBIA), which has $180 million market cap, being a blockchain technology development company. It is a Chinese company with no revenues. As you see, the best options still leave a lot to be desired. That’s why I think whoever can get a cryptocurrency ETF to market will be a big winner.

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So yes there is a bubble and fraud in cryptocurrency, but it’s not bitcoin, it’s in the ICO market. With regards to JPMorgan CEO Jamie Dimon calling bitcoin a fraud. He’s in the minority, as most big bank CEOs are embracing the blockchain and haven’t echoed Dimon’s claims. What can drive bitcoin and the general cryptocurrency market higher is the adoption of the blockchain by other large companies and banks. Many have started to invest in blockchain applications. More investment dollars coming to the industry can happen fast as well.

It’s easy to be bearish on new technology, but investors that ignored the likes of Google (GOOG) (NASDAQ:GOOGL) and Amazon (AMZN) for years can certainly attest to the need for having an open mind. Bitcoin, the Uber of money and the peer-to-peer currency, is the legacy asset in cryptocurrency. Regardless of how certain parts of Wall Street feel about cryptocurrency, there’s no denying the growth that the space has experienced. Granted, I feel that there are plenty of frauds going on in the industry and the public market options leave a lot to be desired, owning bitcoin — even if it’s with the simplest exchange out there — Coinbase — is still a worthwhile option for investors interested in crytpocurrency.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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