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THIS IS ABOUT my crypto journey. Spoiler alert: I still don’t own any.
My journey began in 2013, when I was serving as an assistant principal in Philadelphia. Since I was always giving advice on our 403(b) plan based on my voracious reading of personal finance blogs, a colleague asked what I thought about bitcoin and whether she should invest. Back then, the price was well under $100—close to $30, I think. I dismissively told her to avoid it. Too speculative. Stocks, I assured her, were a far better place to put her money.
Three jobs later, with bitcoin now more in the national consciousness, I decided to take a closer look. It was 2018, and the price had recently dropped from $15,000 to below $4,000. While that was far above the price at which I deemed it too speculative, I again reassured myself that it was too risky and pointed to the sharp decline as evidence that my initial instinct was correct. No, I told myself, bitcoin wasn’t a wise investment.
Over the past few years, I’ve continued to go back and forth as cryptocurrencies in general, and bitcoin in particular, have hit amazing new highs, including bitcoin’s peak of almost $69,000 late last year. During these buying frenzies, I’d kick myself and calculate what my return would have been had I just embraced the risk, even with a small amount of money.
But I still haven’t invested because I’m also acutely aware of the precipitous falls, with bitcoin under $30,000 as I write this. I still can’t see why this thing should go up, even with the past decade of returns to look at. I’m sure this is some behavioral finance bias. But my gut tells me to stay away.
As I root for my Celtics in the NBA finals, I was hit with a new crypto-revelation. Steph Curry is the face of a crypto trading platform. Multiple sports arenas now have crypto names. Some athletes even get paid in crypto. High school students talk about crypto as though it’s the investment option. There’s a belief that crypto is a sure thing—and that belief is being evangelized aggressively.
The upshot: If someone asked me today whether to buy, I’d be even more cautious. All of this smells like a bubble, one that’ll ultimately damage those who arrive late to the party. Almost a decade after I first thumbed my nose at crypto, I realize I might be wrong. But stocks still strike me as a better bet.
In 10 years’ time, I don’t want to regret not investing in Crypto so I dollar cost average a small amount into BTC, ETH, ADA, SQL, and USDC (a 9% yield). And go, Warriors!
Not a fan of crypto. I own a single share of BLOK just to keep it in sight. BLOK is supposed to focus on blockchain technology, which does have non-crypto uses. However, for now, BLOK price action mirrors bitcoin, which both makes sense yet is disappointing. I was hoping to see more innovation in non-currency spaces, but it may be too soon to expect that to be monetized in any significant way. Meanwhile it seems to me:
Cryptocurrency remains in my ledger of “greater fool” speculative options. It has no intrinsic value and produces no income. The only thing more flawed than cryptocurrencies are NFTs.
I have read that some people attribute the spectacular rise of crypto to the near-zero interest rate, easy credit environment we’ve had for the last decade. One has to wonder, now that the Fed is raising interest rates, if speculation in cryptocurrencies and the accompanying price spikes will continue.
Enthusiasts have claimed cryptocurrencies are an inflation hedge since they are not government fiat money. As far as I’m aware, up until now, crypto has not demonstrated that it is an effective hedge against inflation.
With the future of crypto uncertain, I agree with you that stocks are a better long-term choice. At least with stocks, you own a piece of businesses that provide useful, if not essential, products and services. With crypto in your portfolio, what do you really own?
Thus far, Crypto acts a lot more like a Tech Stock (the ratio to QQQ pricing is very consistent for the past couple years.) If that relationship holds, I guess one could say there may be some inflation protection built in over the long-term, but in the short-term it takes a hit just like most equities do.
True. Cryptos seem more akin to commodities.
IF there were just 1 crypto currency in the world that had a fixed and permanent total “coins”, I can see believing in it the same way we “believe” in the Dollar. The Dollar holds up, not because it represents gold bars in a vault but because we all agree that it is our measure of value. and the rest of the world goes along with that.
In fact, if my scenario were the case, I would put more value in the blockchain because it would automatically be worth more each year as long as the world economy expanded because it could not inflate, unlike the printable Dollar.
BUT, alas, that isn’t how crypto is playing out.
We “believe” in the dollar because it’s backed by the US government. But even a single cryptocurrency would not be backed by any government due to its decentralized nature. I suppose we would “believe” in it to the extent that others would accept it as payment for goods and services.
If the dollar was replaced by crypto, how would the government ease credit conditions during an economic downturn if it couldn’t create fiat money? I’m no fan of government monetary policy, but don’t some economists attribute the gold standard in place during the Great Depression as one factor that made it so severe?
I can see two major benefits to the dollar. It cannot be hacked, and all cash transactions are anonymous. With the blockchain, every transaction you engage in is recorded on servers somewhere and is publicly accessible. Indeed, as I understand it, your entire financial history would be available to the public. Speaking for myself, I would rather enjoy the privacy of dollars than the exposure of cryptocurrency and the blockchain.
My understanding is that cyrpto transactions are anonymous which is why they are used by criminals and money laundering. Govts do not know who is doing those transactions. If transactions were not anonymous or could be determined through court orders, criminals would stop using cyrpto.
Aren’t some cryptos designed to be more private?
I put a question mark because I don’t know enough about this stuff. I had someone tell me that Monero was used for transactions meant to stay private, such as those on the dark web but I’m clueless as if that is accurate.
Nate, like you I also don’t know enough about crypto. But sometimes, what I hear sounds contradictory.
According to my limited understanding, the blockchain underlying crypto functions as a ledger, recording all transactions using the cryptocurrency. This publicly viewable ledger is supposed to eliminate the need for banks to act as middlemen in financial transactions.
But if a cryptocurrency is meant to keep transactions private, does it use a blockchain? If not, how do you ensure the integrity of transactions? I don’t know.
A cryptocurrency meant to be used for private transactions sounds to me like barter. I’ll swap goods that I own for your private tokens and no one else will know. And I’ll hope that someone else will swap their goods for my tokens. The government can’t ensure that my tokens will be commercially acceptable because the government is not involved.
Count me confused.
Phillip, the best I can come up with is the investopedia article on Monero.
https://www.investopedia.com/tech/introduction-monero-xmr/
It states: “Monero’s blockchain is intentionally configured to be opaque. It makes transaction details, like the identity of senders and recipients, and the amount of every transaction, anonymous by disguising the addresses used by participants”
How does it do that? I have no idea. I’m sure there are more technical articles on it for anyone interested enough.
My understanding is that the identities are anonymous, but if you know an identity, then you have their entire history. So the FBI raids a scam operation, grabs the computers (PCs, pads, phones, etc), learns the identities, and can track all the players whose IDs are resident on those devices or other collected information. That’s my best recollection of an actual event I read about some time ago.