Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Is SALT a good Investment?

The micro-lending cryptocurrency known as SALT (SALT) seems to be very popular with investors.

Secured Automated Lending Technology (SALT) had achieved an impressive Coin Price of $1.99 and a nice Market Capitalization of $112.088 million by 4 April 2018. Unfortunately, that price came with a lot of market volatility; the price fell by 10.87% between 3 and 4 April. That led to a Market Volume of $6.251 million.

SALT achieved those prices on a Circulating Supply of 56.194 million and a Total Supply of 120 million on April 4, 2018. SALT has no Maximum Supply so it is vulnerable to inflation.

What is Salt Anyway?

Such prices obviously have a lot of people wondering what exactly is SALT and is it worth the price. SALT is a micro-lending service that uses cryptocurrency as collateral. A good way to think of SALT that some of its devotees may not like; is as a digital pawn shop for the cryptocurrency.

Despite that questionable line of thought, there are some good attributes to SALT. It appears to a well-organized and highly-capitalized effort with a potentially profitable product.

SALT also some good technological attributes; such as being convertible with Ethereum (ETH) and Bitcoin (BTC), the two largest cryptocurrencies. Since it appears to use the ERC20 protocol, SALT should work with the many ERC20 tokens on the market today. Since Ethereum-convertible ER20 tokens make up most of the non-Bitcoin altcoin market these days – that might provide access to a large market.

Will SALT’s business model work?

SALT’s service might be popular because it lets people borrow against cryptocurrency, and receive fiat currencies like dollars or pounds. This solves the problem of being able to spend funds from cryptocurrency in the real world.

SALT offers fast application process with no credit checks. Since it is all done in the blockchain, the loan is based purely on the amount of cryptocurrency a person holds. Loans can be collateralized by several cryptocurrencies including Bitcoin (BTC), Litecoin (LTC), and Ethereum (ETH).

Such a business model would only work if SALT has solved the cryptocurrency liquidity problem. Liquidity means the ability to get cash quickly for your tokens or loans, without it something like SALT is worthless.

The biggest drawback to present day cryptocurrencies is that they are not liquid. You cannot quickly convert them into cash you can use in the real world. That is you cannot take Ripple (XRP); or Litecoin (LTC), down to Kroger and buy food for the family with it. SALT may have an answer to that problem, or at least a partial solution that might make cryptocurrency more attractive to average people.

Unfortunately, SALT’s website says nothing about liquidity and there is no evidence that SALT is participating in the largest effort to ensure cryptocurrency liquidity: the Bancor Network. A very smart move for the SALT team right now would be to join the Bancor Network and make SALT convertible through its Bancor (BNT) “smart token.”

Will SALT make money?

SALT has a lot of potential because of the size of the world’s cryptocurrency market. The total Market Cap for Cryptocurrency was $262.395 billion on 30 March 2018, Coinmarketcap reported. That figure has been much higher it was $741,620 billion back on 4 January 2018.

That means there is an opportunity for borrowing and microlending in the cryptocurrency sphere. There is a big opportunity to generate a lot of interest from those loans.

Unfortunately, there are huge barriers to successfully issuing blockchain-backed loans. The biggest of which is legality, but other roadblocks to its business model abound.

Is SALT Legal?

There are serious dangers to SALT including its legality. SALT’s microlending might violate banking regulations or anti-usury laws.

A major drawback to SALT will be that it might require a banking license. This might require SALT to follow specific Know Your Customer (KYC), anti-money laundering, and other onerous and costly requirements.

Securities and investment regulations are another huge barrier SALT faces. It is trying to sell Blockchain-backed loans as an investment. Authorities including the Securities and Exchange Commission (SEC) in the United States and the People’s Bank of China (PBOC) in the People’s Republic are cracking down hard on cryptocurrency-related investments.

SALT; which looks a great deal like a derivative, is sure to attract their attention. One reason why regulators will go after crypto products like SALT is that the blockchain industry is small and lacks money and political clout. Unlike the big Wall Street banks in the USA or the City of London, SALT and other crypto companies do not own any politicians – yet.

That makes it easier to go after. Regulators often behave like predators; they pursue the smaller and weaker companies and ignore the big strong organizations with the ability to fight back. This means it would be advisable for average investors to wait until Goldman Sachs (NYSE: GS) or Tencent Holdings (HKG: 0700) starts investing in SALT to get into crypto-based lending.

Is SALT Practical or Scalable?

SALT’s micro-lending might not be practical with today’s blockchain and cryptocurrency technology.

The greatest technological barrier to SALT’s business model is the scalability problem. Scalability is the maximum size of the blocks or architecture of the blockchain. The size of the blockchain determines the volume of transactions a platform can platform. That means it might not be possible for SALT to process enough loans to serve a mass market.

Current estimates are that the Ethereum blockchain can only process 13 to 20 transactions a second, depending on which expert you consult. Ethereum’s ability to process tokens is even slower, Coinbase co-founder Fred Ehrsam charged that Ethereum can only process around seven tokens a second. Bitcoin (BTC) is even worse the world’s most popular cryptocurrency can only process three to four transactions a second, Altcoin Today reported.

SALT’s Business Model is Not Realistic

SALT might only be capable of processing one or two loans every minute with the present technology. One has to wonder if it would be able to process enough loans to make money.

This leads to two conclusions; either SALT is not workable, or SALT has solved the scalability problem. If the first conclusion is correct SALT will collapse. If the second hypothesis is true SALT needs no outside investment – because it has a trillion-dollar technology.

My suspicion is that SALT’s business model is to hope somebody solves the scalability problem. That is a terrible business model because it appears to nobody is close to solving the scalability problem.

There are numerous attempts to solve the scalability dilemma going on out there; including Plasma, the Lightning Network, Ripple, Zillqia, Universa, and the Raiden Network to name a few. Unfortunately, there is no evidence that any of these organizations has solved the problem. Some of them like Plasma and Zillqia (ZIL) are still on the drawing board.

An even worse scenario for SALT would be somebody solves the scalability problem with a patented protocol. The entity that did that would be in a position to build its own lending solution, or worse to charge SALT high fees to use its technology. That entity; not SALT, would be the company to invest in.

A true nightmare for SALT would be that a major investment bank; or big technology company, solves the scalability problem and uses that tech to build a liquid cryptocurrency lending solution connected to the banking system. There would simply is no way SALT can compete with something like JPMorgan Chase (NYSE: JPM) or Alphabet (NASDAQ: GOOG).

SALT is a terrible investment

At the end of the day SALT is a terrible investment because it has a purely theoretical product and business model.

Investors should stay away from SALT until it demonstrates that the scalability problem has been solved, cryptocurrency microlending is legal and profitable, and that the risks from its lending are low. It is also a good idea to make sure SALT has solved some other potential problems including liquidity.

The sorry truth is that SALT is simply overpriced right now. Stay away from this cryptocurrency until its creators have proved they can make good on their claims.