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Quick Thought Of The Week: Monkey

Have you ever wondered why some so-called experts continually talk up cryptocurrencies such as bitcoins?

I do. I quite often question why apparently sensible people would want to promote something that they can’t value. Then it dawned on me. The answer lies in the monkey riding the tiger…..

….. If a monkey should jump onto the back of a tiger, it can only be assured of its safety as long as it stays on the tiger’s back. As soon as it jumps off, it could meet a horrible end.

What does this have to do with bitcoins?

I don’t think that anyone can dispute the usefulness of blockchains. They could revolutionise the way that data is passed across the internet securely. They could change the way that we transmit money, data and documents.

They could even make redundant the way that we store documents, such as title deeds to properties, certificates and licences. So, cryptocurrencies, which include bitcoins, do have their uses.

But to be useful as a medium of exchange, cryptocurrencies must be stable. It is unlikely that two parties to a transaction will want to use cryptocurrencies, if neither party knows how much they are paying or receiving.

So to be useful, bitcoins must be stable. The value is kind of irrelevant, provided it doesn’t fluctuate violently.

But stability could also destroy the value of bitcoins. A lack of volatility could cause it to lose its allure, which could also result in a collapse of its value, as irrational exuberance and support ebbs.

So the monkey has to keep riding the tiger until one of them collapses from exhaustion. Either way, it doesn’t end well for the monkey or the tiger.

A version of this article first appeared in Stock Advisor.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.