Is the Race for Cryptocurrency the New Gold Rush?

In the 1800s, prospectors hopped trains and hitched wagons westward, in the hopes of sifting their pan in a stream and coming out with glorious Au — or gold for those whose familiarity with the periodic table of elements is a little rusty (or neatly tucked away in a high school science class repressed memory).

Why the retrospective introduction? Because a growing number of pundits — such as CIO contributor Nicholas Evans — are drawing parallels between the gold rush of yore, and the race for cryptocurrency today. To wit:

●        Global Impact

Both the gold rush frenzy and the cryptocurrency craze are global events with far-reaching economic implications, including many that are driven by governments. Indeed, contrary to mythology, more than 300,000 people from outside the U.S. flocked to the land of opportunity to hunt for gold.

●        Innovation

Early prospectors who panned for gold using basic shovels and picks, soon found themselves being crowded out (and sometimes run off) by innovations such as hydraulic mining machines. In a similar vein, today’s cryptocurrency hunters are striving — and in some cases, struggling — to keep up with advancements, such as new types of Blockchain/crypto funds that purport to reduce some of the underlying volatility.

●        Winners & Losers

For every celebrated gold rush millionaire, there were countless people who lost everything: their homes, their savings, and often most financially devastating, some of the best working years of their life. The stakes probably aren’t as high for most cryptocurrency investors today, but the fact remains that if there’s no bubble to burst, then while a small number of people and organizations will be jumping with joy, many more will probably find themselves with little reason to celebrate — and will be hobbling with despair (ideally with enough cash remaining to get treatment from a good orthopedic surgeon).

●        Regulatory Vacuum

One of the things that made the gold rush such an indelible part of Americana was the sheer chaos of it all — especially at the beginning, when there was no Federal oversight to protect miners from everything from robbery to murder. While the cryptocurrency quest isn’t necessarily the Wild West 2.0, regulations and standards are somewhere between in-flux and non-existent.

For example, when asked in a recent interview by Nasdaq.com about what accounting rules apply to cryptocurrency, Bob Graham, head of the digital currencies division at Friedman LLP replied: “Currently under U.S. GAAP, there are no specific accounting principles to address digital currencies, and therefore companies must interpret existing standards to determine which standard best applies by analogy to the transactions they are accounting for.”  

The Bottom Line

There are some folks who swear that cryptocurrencies are the opportunity of a lifetime. And then there are others like JP Morgan boss Jamie Dimon, who flat-out allege that Bitcoin et al is a fraud. And then there’s a whole bunch of individuals and organizations (and even governments) that fall somewhere between the two positions. It remains to be seen, when the virtual dust settles, whether the cryptocurrency story will be an incredible success epic — or a tragic cautionary tale. Alas, only time will tell.