“The ultimate irony of crypto… is that crypto is succeeding by doing exactly the opposite of what it was originally intended for… Crypto will make governments and big corporations more, and not less, powerful.” —Mehta, Neel; Agashe, Aditya; Detroja, Parth. Blockchain Bubble or Revolution?
Bitcoin soared recently to $103,619 with hopes of lighter financial regulations and a crypto business launching President who, perhaps selling influence, profits from “TRUMP” meme coins and promises to make America “crypto capital of the planet.” The BBC says, “The latest dip in value came after Trump told reporters: ‘I don’t know much about it other than I launched it, other than it was very successful.’” Trump had dubbed cryptocurrencies “a disaster waiting to happen” rife with drug trade and illegal activity, and master investor Warren Buffet declared “Bitcoin is probably rat poison squared.” Does crypto belong in your portfolio?
Cryptocurrency is a cryptographically stored payment system with a decentralized blockchain accounting system that usually prevents fraudulent or inflationary additions to money stock. Coin values are hard to manipulate, but law and tax enforcement may now trace transactions. Anyone can make more bitcoins if they purchase sufficient computing power and electricity—more power than Norway consumes. “Mining” becomes artificially more expensive to limit supply, but coin supply decreases with lost passcodes.
Ben Bernanke, former Federal Reserve chair, sees crypto as a “faster, more secure and more efficient payment system.” Zuckerberg and Musk are experimenting with crypto payments on centralized apps like WeChat. With no SEC paperwork, crypto lacks credit card legal guarantees and payments are irreversible.
VISA handles more transactions than cryptocurrencies, faster transactions, but cryptocurrencies may save fees for large transactions. With no ledger or “blockchain” to record wallet addresses, consumers suffer fraud.
Bitcoin was an “extremely inefficient way to transfer money,” said Janet Yellen of the Federal Reserve. “It is a highly speculative asset, and you know I think people should be aware it can be extremely volatile and I do worry about potential losses that investors can suffer.”
Stocks generally don’t fall by 10% in a week, but Bitcoins have fallen 10% in a day. Unless “stablecoin” tokens tie to major currencies, crypto will likely fail as means of exchange or store of value. In 2020, China controlled 80% of Bitcoin mining and equipment; yet its oligarchy bans internal crypto trading. China considers its own crypto to accomplish what Hillary Clinton fears: that Bitcoin could “destroy the position of the US dollar.”
Cryptocurrency price increases were phenomenal. Bitcoin started in 2009 at a dime but reached $29.60 in 2011 and $1,000 by 2013. After dropping to $5, prices streaked to nearly $20,000 by 2020 when competing currencies and institutional investors entered the game. Prices rose to $64,000 but dropped 50% to $30,000. Prices rose again when Robinhood and PayPal eased purchases, and the SEC allowed trading in Bitcoin ETFs that diversified portfolios. Expect further increases tied to financial uncertainty but know—like unlucky Dutch Tulip investors—that past performance does not guarantee future results.
Bill Gates on Reddit argued that “The value of companies is based on how they make great products. The value of crypto is just what some other person decides someone else will pay for it, so not adding to society like other investments.” Publicizing financials, Boeing makes airplanes that crash; yet it still assures investors with public accounting, planes, factories and other salable assets.
Bitcoin scarcity does not create value, as Buggy whips are worth little, and Trump meme coins may recreate endlessly. “You stare at it all day and little Bitcoins come out,” Warren Buffet said. “Or something like that. It’s delusional.” And which coins will prevail?
Instead of speculating, I urge investors to seek assets of real value or perhaps even ideas that could light the world. Boldly donning my financial wizard cap, I predict anonymity and criminality will leave crypto while 1040 tax reporting increases and abuse blares. Crypto will most likely be used for fiat money tokens and large or international transactions.
Speculators gamble on gains related to chaos of deficits, detentions and trade wars—but crypto will fail once investors snicker at the naked emperor.
Robert Arne, EA, CFP, MS, of Carpe Diem Financial Life Planning, gives holistic financial advice as his client’s fee-only fiduciary. He serves mostly Santa Cruz Mountain dwellers. These articles must not be read as personal financial, mortgage, tax or investment advice; consult appropriate professionals. Learn more at www.carpediem.financial.
