Cryptocurrency: Alternative Money or Huge Scam?
Back in 2022, I wrote about my semi-conversion around the use case for bitcoin as an alternative investment asset. I say semi-conversion because I still had issues with how it was valued and the environmental cost in that mining a single bitcoin requires a substantial amount of electricity and increases greenhouse gas emissions. As endorsements went, it was relatively tepid because I had researched blockchain technology and the rise of cryptocurrencies in my graduate studies and was sold on the former, not so much on the latter.
Well friends, put me solidly back on the bench. I never actually bought into crypto and wouldn’t recommend it as an investment asset today. Crypto is the way to go if you are interested in making purchases off the dark web anonymously. Otherwise, regular fiat currency works just fine.
Ben McKenzie, who you may remember as Ryan Atwood in the serial drama, ‘The O.C.’, has written a book and produced a new documentary film on the cryptocurrency industry, entitled “Everyone is Lying to You for Money.” McKenzie has been making the podcast rounds talking about his crypto industry research, how it defrauds regular people drawn in by the desire for easy money, and who ultimately benefits from the system. It is well-researched and sometimes entertaining and concerning commentary on an industry that makes regular people believe they are part of a community that supports each other, only to be taken advantage of by those who built the systems that promised that support. In the final analysis, we see how crypto is a Ponzi scheme where early adopters were lucky enough to make a lot of money and everyone else falls prey to the near constant marketing barrage of celebrity endorsements extolling the virtues of cryptocurrency.
If an argument for crypto is its ability to transact directly to peers without the interference and cost of banks as the middleman, then you are going to have to deal with a few negatives. First, the anonymity that facilitates easy money transfers can also result in losses if you cannot access your crypto wallet because you forget your key or the network shuts down. While other countries are working towards regulation of the industry, in the U.S. the ability to regulate cryptocurrency is in a state of disarray with different agencies vying for control and the Federal government at odds with the states. Meanwhile, a small group of “crypto billionaires” and major corporations are financing PACs to install politicians who are friendly to the industry. Good luck seeing any real regulatory efforts in the near future.
But the lack of regulation may not matter to proponents of crypto and may be more of an endorsement because one of the benefits of crypto is that it is a speculative investment with the ability to create great wealth. McKenzie’s documentary shows how crypto exchanges can be manipulated by those who created them by bidding up the price of the crypto and then dumping their shares, leaving regular investors with nothing. So being early in the game and controlling the exchanges doesn’t leave a lot of room for the little guy to profit.
I highly recommend that anyone with interest in learning about cryptocurrency check out the movie, or read McKenzie’s book, Easy Money: Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud. As Warren Buffet used to say, never invest in something you don’t understand. If you can’t tell me how crypto works and its best use case or value add, then I suggest you may not want to risk your actual money to own it.
Meet Kristan L. Anderson, CEBS®, CFP®
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