“I can calculate the motion of heavenly bodies, but not the madness of men.” Isaac Newton, after losing a fortune in the South Sea Bubble.
Speculation has always been dressed in new clothes.
Today, it’s Bitcoin treasuries, cryptocurrencies, meme stocks; centuries ago, it was the South Sea Company and many more.
The names change, the technology changes, but the underlying psychology doesn’t.
In our last podcast with the team, we discussed the Smarter Web Company. Founded as a modest web design business, it has reinvented itself as a “Bitcoin treasury company.” That means it raises money, buys Bitcoin and calls it a strategy. In the process, it has lured investors with one of the most intoxicating stories of all: the chance to ride a new financial frontier.
And it worked, at least for a while. Within weeks of listing, Smarter Web’s stock skyrocketed more than 12,000%, only to collapse 71% soon after.
We know from behavioural psychology that people fear losses more than they value gains.
Yet in markets, FOMO often overwhelms caution.
I have researched several businesses; for one thing, I’m sure. A true business produces recurring income or works toward an innovation to generate profit at some point in the future.
Smarter Web doesn’t have that. Its model depends on raising new capital and marking up Bitcoin gains on its balance sheet.
This is not a sustainable business model.
Leverage makes risk intoxicating. It magnifies gains in bull markets and devastates balance sheets in downturns.
Take Smarter Web’s Smarter Convertible bond. On the surface, it looks sophisticated and convertible into equity, with downside protection.” But look closer: the bond’s principal is denominated in Bitcoin, not pounds.
This means repayment is tied to Bitcoin’s price, which can fall 70–80% in a “crypto winter.” The “downside protection” only protects the number of coins, not their value in real money.
When sentiment is hot, the story sells. When sentiment cools, the treadmill stops and so does the business.
Humans are wired for stories, not statistics. That’s why investors were paying a premium for Smarter Web, even though that is no longer the case now.
The company’s narrative, a plucky digital agency reinventing itself as the UK’s MicroStrategy, boldly stockpiling Bitcoin as “digital gold”, is seductive.
This is why critics call it a “zombie firm.” It walks, it talks and it trades on an exchange, but without cash flows, it isn’t really alive.
We saw risk, but some did not, as legendary investor Warren Buffett once said, “Risk comes from not knowing what you’re doing.”
So why do investors line up to buy shares in such ventures?
Why do investors trust a web design firm to manage a Bitcoin portfolio?
Why do people pay more for something they could buy directly?
Because stories are powerful and it’s psychological.
It’s easier to tell yourself you’re backing the “future of money” than to admit you’re buying Bitcoin at a premium through a web design company.
As Charles Mackay wrote in Extraordinary Popular Delusions and the Madness of Crowds, every generation rediscovers speculation as if it were new. Smarter Web is simply the latest chapter in an old book.
When I look at companies like this, I remind myself of one thing: risk is not volatility; it’s survival first and protecting potential permanent loss of capital.
If your wealth depends on constant fundraising or on the kindness of markets, you don’t own a business; you’re at the mercy of a story.
And stories, no matter how compelling, don’t pay dividends.
As Warren Buffett once said, “Only when the tide goes out do you discover who’s been swimming naked.”
The company may succeed. Bitcoin soars and its treasury strategy looks brilliant. But the bigger lesson isn’t about Smarter Web; it’s about us.
Every generation finds its “smart” bet, its way of packaging risk as opportunity. And every generation forgets how quickly that story can turn.
As they say, first protect your risk, we often call it the margin of safety, and the returns will look after themselves.
In the end, investing should be watching your return compound slowly. If you want excitement, take your money to Las Vegas.
Awet Ghirmay, Head of Investment Research
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Risk warnings
The value of investments and the income derived from them may fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action. All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs practice. Levels and bases of tax relief are subject to change. This blog is based on my own observations and opinions.
