Economist Nouriel Roubini, also known as Dr. Doom, took aim at cryptocurrencies yesterday due to his overly pessimistic views on financial outcomes, labeling 90% of them as scams,
With everything going on in the crypto world, from exchange crashes to massive fraud cases, it would be easy to buy into that idea. After all, cryptocurrency lacks something that we humans value very much – tangibility. Simply put, there is nothing to hold in our hands. Cash is good. Gold is good. We can get hold of it, keep it in safes and wallets, and the more we have, the bigger the pile and the more it weighs. It makes sense to our caveman minds.
But crypto doesn’t work like that. It’s just numbers on a screen. And of course, nowadays as we move closer to a cashless society, even traditional currencies are just numbers on screens, we carry around with apps and charge cards, but we know in the back of our minds that we We can walk into our bank and they can give us all that money in a nice, big fat pile of cash, and our caveman brain will be happy.
So is that correct? Is this all just one big Ponzi scheme, concocted by a brilliant mind, that promptly disappeared and left us throwing our money at the idea, hoping to get back more than we put in?
Do whales really exist? Giant investors who suddenly appear, pump huge sums into cryptocurrency and then disappear from view? Are people like Michael Saylor today’s version of PT Barnum, leading us all to believe in this creation, which in turn drives up the value of his holdings but leaves everyone else empty-handed?
Roubini is right about one thing that there are definitely people out there who use cryptocurrency as a means to steal other people’s money. But ever since money has become an established concept in society, this has been true of all money. What is true nowadays is that we live in a more connected society, where news breaks faster and wider, and stories of deception and wrongdoing are ‘exciting’ to read. It is for this reason that we hear about crypto scams a lot, and as the media needs readers, it pushes such stories to keep coming back to us. This in turn gives us the impression that the cryptoworld is a cauldron of frauds, scams and generally people out to get us.
The information surrounding the FTX exchange and its closure only serves to fuel this fire. Expensive vacations, private jets, and tales of billions embezzled may be enough to make even the most die-hard crypto-fan reconsider where to put their money. And yes, some of the people at the top of the FTX empire were almost certainly not acting with the care and consideration its investors would have hoped they would, and hopefully all those affected will be saved at least somewhat from bankruptcy. Will get compensation.
If I look at Coinmarketcap.com today, January 19th, I see that the global market capitalization of the cryptoworld is $963.5 billion. That’s a huge figure by anyone’s standards – bigger than the GDP of Turkey, the Netherlands, Saudi Arabia or Switzerland. And it has created countless millionaires in its time, whose cars, homes, and lifestyles are real and tangible. Granted they were at the right place at the right time, but this is true of all investments.
A better formulation of Roubini’s comments would be one that applies to investors in all assets – caveat emptor – or buyer beware. During bitcoin’s meteoric rise it looked like a 19th century gold rush. The message being given was to invest anything and everything you can because we are all going to be rich. And like the gold rush, or the oil boom, or the dot com bubble, eventually it found its balance and normality returned. Now, whether the $20k mark is normal for bitcoin remains to be seen, but what we can say is that investing is a long term thing. If you bought your bitcoins in 2009 then life has been a rollercoaster, but your investment is still worth more than it has been since then. If you had invested in the US30, which is an index of the 30 top US companies, you would have enjoyed a similar ride in 2009, but again, your investment would have been worth much more than it was then.
There will always be people to say no, especially to new concepts, because it is human nature. In its early days the Internet was branded as a fad, like CDs, cars, even washing machines. What is true for all aspects of life is also true for crypto: use your common sense. If something sounds good it is always true. Invest judiciously, carefully and with full knowledge of what you are doing.
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