Editor’s Note: As Alexander Green shares in today’s article, crypto fanatics would have you believe that so-called “digital gold” is the currency of the future. But this is nothing more than an empty promise…
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A subscriber recently wrote to say he was taking my advice and using the down market to selectively buy beaten-down shares of high-quality companies.
“Should I buy the crypto dip too?” he asked.
Don’t even think about it.
I’ve warned readers about cryptomania repeatedly over the past several months, even as it reached its peak. (You’ll find those columns here, here and here.)
Here’s a quick summary…
Throughout the history of paper money, currencies have traditionally been under government control.
But those governments – including Uncle Sam – have not done a good job of protecting their value.
Fiat money – currency that isn’t backed by anything tangible like gold – has always declined in value over time as governments printed more of it and inflation eroded it.
That is why the dollar has lost over half its purchasing power over the last 25 years, even though it was a period of historically lower-than-average inflation.
Is a privately owned and strictly limited currency – like Bitcoin or some other digital currency – the answer?
As a libertarian who believes in free minds and free markets, I would love to say yes, that crypto and the blockchain are the answer.
But we live in a reality-based world where the best conclusions are based on facts, reason and evidence… not hype, celebrity endorsements and the willing suspension of disbelief.
Think I’m overstating the case?
Then consider this: Virtually everything that crypto promoters have told us would happen, hasn’t happened.
They said it would make transactions quicker. They are slower.
They said it would make them cheaper. They are more expensive.
They said it would make them easier. They are more difficult.
At investment conferences when I ask attendees how many own crypto, over half the folks in the audience raise a hand.
When I ask how many in the room have bought anything with crypto, no hands go up.
Why is that?
Because – aside from the drawbacks I already mentioned – digital currencies are far too volatile for regular purchases or sales, especially of big-ticket items.
As for borrowing or lending in these currencies? Forget about it.
As a lender, the dollar value of your crypto loan could quickly become worth a fraction of the amount you lent.
As a borrower, the dollar value of what you owe could quickly become a multiple of what you borrowed.
That’s why virtually no one is buying, selling, borrowing or lending in “the currency of the future.”
“Oh, but they will… and soon,” the promoters keep telling us.
Really? Bitcoin has been around only a few months less than the iPhone.
Imagine if 14 years later, the only thing your iPhone was good for was betting on the price of it in the market.
There are exceptions, of course.
If you’re a terrorist network, drug cartel, heavy weapons dealer, human trafficker, extortionist, tax cheat or rogue nation trying to avoid economic sanctions, crypto is a godsend.
For everyone else, all crypto is good for is speculation.
And how has that speculation panned out lately?
Bitcoin has lost over half its value over the past seven months. Other cryptos have fallen about as much… or more.
Hmm. Remember when crypto promoters told us that it was a wonderful inflation hedge?
They even called it “digital gold.” Remember that?
Well, here’s a fine test. The world is experiencing the highest inflation in 40 years.
And rather than holding up or appreciating in value like old-fashioned, non-digital gold, crypto has put up a chart pattern that looks curiously reminiscent of the last flight of the Hindenburg.
Maybe that’s because unlike other technological innovations like the internet… or the cloud… or the smartphone… or 5G, cryptos don’t solve any real-world problems.
Indeed, many cryptos are nothing more than scams or poorly run projects that collapse under mismanagement.
Others are vulnerable to hacks that cause supporters’ money to vanish.
They’re environmentally unfriendly too. (Bitcoin miners consume more energy each year than the country of Argentina.)
Yes, I realize there are a few sophisticated investors involved with crypto.
But invariably they are either promoting their own crypto products and services or playing a game with money that they can easily afford to lose.
Sadly, many punters have already lost their life savings.
And many more – the folks who are susceptible to marketing blitzes, Super Bowl ads and Kim Kardashian endorsements – soon will.
Even the safest part of the crypto market – stablecoins – has been a crushing disappointment. (Or should I say crashing disappointment?)
Perhaps we should call them what they really are: “un-stablecoins.”
In sum, the crypto dream is looking like a nightmare to more people every day.
So my advice remains the same…
If you bought crypto early and have a profit, sell now. If you bought crypto late and have a loss, sell now.
One day – and it may be soon – crypto traders are going to wake up and realize en masse that the emperor has no clothes.
And when that happens, crypto won’t just go down.
It’s going to go… “poof.”
Good investing,
Alex
P.S. Whole Foods founder and CEO John Mackey and I will debate two prominent crypto bulls at FreedomFest at The Mirage in Las Vegas, July 13-16.
The resolution? “Crypto Is the Biggest Financial Bubble Since the Dot-Com Era.” John and I will argue the affirmative. Other keynote speakers include publisher Steve Forbes, comedian John Cleese, author Ben Stein and Senator Rand Paul.
It’s an event not to be missed. For more information or to sign up, click here. I look forward to seeing you there.
