Check out the new boss! Same as the old boss!
Ok, this editorial will be about a UK company, but not a band, and not the Who. Instead, it’s a history lesson dating back a few hundred years.
Investment plans have been around for a very long time. In all likelihood, the first pyramid schemes are lost in time after being run by opportunists whose names we will never know. Modern investment fraud dates back to the 1800s and fractional reserve banking operations date back to at least the 1600s. Charles Ponzi popularized them so much that they even named a specific method after him!
We also have ample evidence of a general distrust of predatory exchange rates and bankers given to us by the Apostles Matthew and John who describe the Son of God making a whip to drive money changers out of the temple. .
Source: Carl Bloch (1834-1890), “The Purification of the Temple” (photo: public domain)
But are there lessons to be learned from the history of investment fraud and asset bubbles, or should we even care because “Bitcoin fixes that?”
Tulips. So many tulips…
Let’s focus on mania and bubbles. People often cite Tulip Mania as an example of an investment frenzy that destroyed lives, but there’s evidence that this particular bubble didn’t really happen as some would have us believe, and I think that there is a better bubble to learn for today. savvy bitcoin investor.
It all started when a British company was founded in 1711 by an Act of Parliament, creating a very trustworthy public/private as a means of reducing Britain’s national debt which had been created by a trade imbalance resulting from the sudden emergence of the Americas as a factor in Britain’s economy. The government decreed a monopoly on various goods and called the entity “The Governor and Merchant Company of Great Britain, trading in the South Seas and other parts of America, and for the promotion of fishing”. It rolls on the tongue, huh?
In short, it was called “The South Sea Company”.
Eye-catching logo, killer developers, and an awesome community of whales – I mean, whalers.
Since the 1500s, the slave trade had been a hugely profitable sector of the British economy, and public confidence in the industry was at its highest in the early 1700s. Everyone in the empire had missed out opportunities to invest in the industry because it had been one of those “up only” sectors for more than a generation, and average citizens expected the industry to grow forever. And if slavery wasn’t going to be awesome, whaling sure was! But, of course, that’s not what happened…
The South Sea Company began by offering Celsius HODLers—whoops ! I’m sorry, I mean the stock owners of the company – 6% interest paid at regular intervals just to be part of the South Seas ‘community’. Unfortunately, the treaties with Spain allowed Britain only a limited amount of trade and gave the Spaniards a percentage of the profits that was not originally intended. Spain also levied new taxes on slaves and almost completely barred British ships from importing other goods and services. Already, the South Sea Company was in trouble…
Over the next few years, the company bled money because it wasn’t doing much of worthwhile, but the stock price continued to pump on the idea that it should pump because it was the market leader in a booming new industry. Amid some early signs of financial weakness, Sam Bankman-Fried – I mean, King George – ended up stepping in to buy the majority of the company, which added a de facto seal of approval to its financial health, and things stayed on track. .
“WAGMI, Fam! All for muh community. – King George I, 1720. Probably…
The company even ended up buying a lot of the national debt for pennies on the dollar, and it was basically trading shares of the South Sea Company for its debt as the main way to make real money for a certain time. It was a wild speculative bubble for a company that had almost no real revenue relative to its overall valuation.
Bring in the influencers!
The 1700s were a time of great flux for the British Empire. Wealth was shifting from a function of land and title to entrepreneurship and the use of modern financial instruments. This has brought about an era of influencers! Stock promoters stood in the streets and jostled passers-by.
This is the 1720s version of Laser Liotta’s Twitter accounts. (Source: Wikimedia)
The greatest scientist and one of the most respected entrepreneurs of the time was one of the leaders of this period of transition in finance. Michael Saylor, I mean Isaac Newton! Newton was an early critic of bitcoin – I mean the South Sea Company, but he was happy to be a 1% of his day while owning very little real estate and instead focusing on stocks and other modern stores of value! Happy to call it off, Newton sold his shares of the South Sea Company which he had acquired early and went on with his life for a while. He seemed happy to have made some money, but had nothing to do with the investment hunters of the time.
#Bitcoins the days are numbered. It seems only a matter of time before it suffers the same fate as online gambling.
— Michael Saylor⚡️ (@saylor) December 19, 2013
Newton was a sophisticated investor with intimate knowledge of the market as he held positions at the National Mint and worked in an official capacity for the nation and the crown. And at some point in the middle of the bubble, he took a deep look at the fundamentals of the company whose shares he was selling and the market as a whole, and he decided to “go all-in” on the shares of the sea of the South near the top of the market.
It was a massive signal to the English people to follow his lead. How could such a genius go wrong with such an investment in such a great brand in the midst of such a lucrative industry at a time of such momentous economic transition? Right? RIGHT?!
“There is no second-best public slavery and whaling enterprise.” -Isaac Newton. Most likely
In the end, the stock went from £100 to £1,000 and then back again within a year. The bubble burst, investors got a “rekt” and people in the English-speaking world learned an important lesson about investing in a stock that appreciates with powerful influencers, lots of circumstantial fundamentals but no real value creation. for the real world.
The South Sea looks like a shitcoin, huh? Source: Wikimedia
What have we learned?
Well, some of us have learned that an asset that appreciates in price due to popularity and speculation but with diminished, diminishing, or no underlying utility is a bad investment opportunity. We also learned that just because something was a good trade doesn’t mean it’s a good investment. More importantly, we have learned that financial instruments can be powerful when used wisely, but they also carry many risks for unsophisticated investors, and sometimes also for sophisticated investors.
Just because something “works” doesn’t mean it has value, no matter how many people think it does. This story repeated itself several times too. The main lesson concerns the speculative nature of things like BTC and Ethereum, and why we should have the patience and foresight to step back when things get unreasonably hot in the market.
Be kind to each other!
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