I wrote in March that crypto could be looking at a bear market. Back then bitcoin was hovering around US$40,000. As I write this, bitcoin is below US$30,000. I’m sorry.
If we are in a true bear market, though, there will be more pain ahead. And signs are aplenty that we are heading in that direction.
Among those signs, possibly, is how bitcoin has entered the conversation around the Conservative leadership race, through the candidate Pierre Poilievre’s staunch support of it. That evokes a long-talked-about story about a seeming outsider whose sudden interest in a particular investment area harkens doom.
Maybe Mr. Poilievre is the shoeshine boy.
This perhaps-true anecdote of a young blue-collar worker involves the investor Joe Kennedy, father of former U.S. president John F. Kennedy. Mr. Kennedy Sr. said he’d sensed the 1929 stock market collapse and the ensuing Great Depression because, one day, the boy who shined his shoes started giving him investment tips.
I personally never trust a man who doesn’t shine his own shoes, but Mr. Kennedy’s anecdote has lived on as one of those great investment adages.
There’s a similar scene in the film The Big Short, based on a non-fiction book of the same name. A character modelled on the investor Steve Eisman firms up his conviction about the bursting housing bubble after a stripper tells him she holds six hefty mortgages.
Which brings us to Mr. Poilievre. He’s an educated man and his party’s finance critic, and obviously knows what he’s talking about. But that has never been in question, and this isn’t about that.
The moral of the shoeshine boy story is not about the specific kid and whether he had any business giving Mr. Kennedy stock tips. After all, we shouldn’t dismiss the boy’s acumen simply because of his profession. The issue is the trend that the boy represents.
If you meet one shoeshine boy who is into stocks, chances are, you didn’t meet the only one in the whole world with that particular passion. Mr. Kennedy’s take-away from that interaction was that way too many people not normally interested in the stock market had taken an interest in it.
This is what Mr. Poilievre’s bitcoin support indicates. He is hardly alone among the political class in having embraced crypto in the past year. Not to mention the waves of mainstream celebrities, companies and retail investors. Shoeshine boys galore.
To be sure, a surge of outside interest usually bodes well. Hence the crypto boom of the past year. Hence the Roaring Twenties at the time of Mr. Kennedy’s shoeshine moment. It’s just that, at some point, as with how all market cycles go, the party has to end. Mr. Kennedy’s experience was simply a reminder of that, albeit a jarring one that prompted him to sell everything.
While the shoeshine-boy theory is not particularly scientific, it did withstand a test by Fortune magazine in 1996, when journalists asked random people in New York for stock tips. The reporters informally concluded that “the market has a way to go before everybody has a stock tip” – and the crash didn’t come for another four years.
Now, though, comes this anecdote from a crypto journalist, about an experience last year. He is getting a haircut, and a barber is talking loudly about his bitcoin gains. The journalist asks what news sources the barber reads. The barber says he does not read anything but instead watches a YouTube channel by “BitBoy.”
Then there’s former U.S. president Bill Clinton giving a crypto talk in April. Mr. Clinton also gave a crypto talk in 2018, after the earlier bitcoin boom. Both times, he was speaking when prices had passed a peak.
That’s the context with which to view Mr. Poilievre’s bitcoin support. Politicians often have only one reason for talking up any subject. Like Mr. Clinton, Mr. Poilievre has sensed that, increasingly, people outside of crypto circles are interested in the subject – and that by sharing their enthusiasm, those people will like him.
That’s probably a savvy call. But in terms of market movements, the enthusiasm of those who don’t traditionally partake is always a bit of a lagging indicator. At some point, surging mainstream interest in crypto is going to be a sign that it’s time to pack it in and go home.
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