Like Santa, The Legend of Cryptos May Become True After The Fact

I’m sure you’ve heard this story before.

The legend that Coca Cola invented modern day Santa Claus back in the 1930s as part of a grand advertising campaign.

As part of the theory, Coke chose Santa’s red and white colours to promote their brand.

It’s a good yarn, that’s for sure. Our premier Christmas image created by an American marketing machine.

But it’s not completely true.

According to…

Although some versions of the Santa Claus figure still had him attired in various colours of outfits past the beginning of the 20th century, the jolly, ruddy, sack-carrying Santa with a red suit and flowing white whiskers had become the standard image of Santa Claus by the 1920s, several years before Sundlom drew his first Santa illustration for Coca-Cola.

What is true is that Coca Cola did use this now standardised notion of jolly old Saint Nick to shift some product.

And to great effect.

At the beginning of the 1930s, the burgeoning Coca-Cola company was looking for ways to increase sales of their product during winter. This was traditionally a slow time of year for the soft drink market.

And don’t forget, the US was in the middle of an economic Depression as well.

So, how to lift sales?

They ended up turning to a talented illustrator named Haddon Sundblom. He came up with a series of memorable drawings inspired in large part by an 1822 poem A Visit from St. Nicholas.

That associated the figure of a larger than life, red-and-white garbed Santa Claus with Coca-Cola and the slogan ‘The Pause That Refreshes’.

The Secret Life of the Greeting Card - Coca Cola 20-12-2017

Source: The Secret Life of the Greeting Card
[Click to enlarge]

It’s one of the greatest marketing ideas of all time, running still eight decades later.

But the tale had grown tall.

It was more a case of Coca Cola taking Santa’s image than them creating it. The colour match wasn’t driven by Coca Cola. That’s a red herring.

It was probably one of the inspirations for the marketing campaign in the first place. The legend simply got the order of causality the wrong way around.

This happens a lot in life. And particularly in investing.

This tendency to mix up cause and effect.

But when you are investing, understanding this can be crucial to understanding the difference between a bubble and a boom.

Here’s the weird thing that most people don’t get… 

The crypto conundrum

Take a look at the US$600 billion cryptocurrency market right now.

It’s grown six-fold this year alone.

But has it changed anything in your everyday life yet to justify such a rise?

The honest answer is probably not yet. Unless you are a Venezuelan trying to keep your wealth away from shaky government backed currency.

The promise of the technology — a world of data run on decentralised blockchains — is still a few years away from reality. There’s still numerous technical challenges to overcome.

That’s not stopping the prices from going nuts though…

The legend of bitcoin is preceding any sort of practical use case. And prices are rising in anticipation.

Which makes the sceptics think the cryptocurrency market is a bubble right now.

But here’s what they don’t get.

Changes in prices can sometimes create changes in fundamental reality.

That’s not me saying that. That’s the famous investor, George Soros. He calls this process reflexivity. And he traded his way to a sizeable fortune using its principles.

In his theory of reflexivity, he states that:

Imperfect views can influence the situation to which they relate through the actions of the participants. For example, if investors believe that markets are efficient then that belief will change the way they invest, which in turn will change the nature of the markets in which they are participating (though not necessarily making them more efficient).

So, in cryptos case, if people think cryptocurrencies are going to change the world through decentralisation, maybe the price rises will inspire certain people to achieve this very goal.

In a practical sense the frenzy of ICOs has created huge fund flow into this very research. Funds that would never have made it here without the buzz and the hype.

Hyped up prices have actually supported the fundamental path crypto technology is taking.

Myths, legends and reality

Which brings me back to Santa.

The legend of Coca Cola creating Santa is wrong. But in some way, it’s also right.

You see, once they’d assumed the brand, they took control of Santa’s future image.

They didn’t create it from scratch, but they did mould it over time. The legend became true after the fact.

The legend of cryptos may become true after the fact, too.

Or not.

Regardless, the theory of reflexivity makes certain investing situations more complex than a simple linear process.

But if that’s the true reality of human behaviour, then you have to acknowledge it. And deal with it.

People who are waiting on crypto use cases to spring up before investing, may miss the point that it’s the price rises that will bring the use cases.

In a weird way, the higher the prices, the more likely the blockchain revolution is to succeed.

Ryan Dinse,
Editor, Money Morning

Ryan Dinse is an Editor at Money Morning.

He has worked in finance and investing for the past two decades as a financial planner, senior credit analyst, equity trader and fintech entrepreneur.

With an academic background in economics, he believes that the key to making good investments is investing appropriately at each stage of the economic cycle.

Different market conditions provide different opportunities. Ryan combines fundamental, technical and economic analysis with the goal of making sure you are in the right investments at the right time.

Ryan's premium publications include:

Money Morning Australia