For years, those involved in cryptocurrencies, whether they be companies that offer products and services or groups and individuals that promote them widely, have ignored criticism. They were just bad actors. Everything will be displayed. Those who did not jump will be the losers. Hey, would an influencer, especially a paid celebrity featured on Business Insider , cheat on you? Even if they don't know any better?
Given the number of scandalous outcomes and incidents in recent years, it is time to question whether the whole concept of a fully decentralized form of digital exchange is a rational place to store money as it has essentially become commonplace without the creation of a digital exchange. nominal values. , because the Securities and Exchange Commission has yet to establish strict and clear rules. Pumps, scams and large exchanges lead to serious legal problems. What has always been a problem in investing is a big problem in cryptocurrencies.
Wired reported on a study that found that 25% of new cryptocurrency tokens launched in 2022 will be "obvious short-term scammers, defrauding buyers within a week of their launch." As Bloomberg wrote about the events taking place in the cryptocurrency market in 2021: "Every year, billions, literally billions, are stolen with the help of various cryptocurrency scams."
Pump-and-dump schemes (insiders buying a crypto-asset, waiting for the price to rise, selling it, then rushing to sell while others try to exit when the price falls) have been around for decades and are very common. In the cryptocurrency space, Bloomberg also reported: “Some cryptocurrency exchanges called WhaleFarm were trading above $200 on Monday. It was close to zero on Wednesday," they wrote there. The ascent and descent are so rapid that it's a wonder people weren't put in a decompression chamber.
As many investment and financial experts have pointed out, cryptocurrencies are not an investment, but pure speculation. There is nothing behind them. Buy shares and you get a piece of the company along with its assets, revenues and profits. Buy a bond, and if your investment involves risk, there is a company or government that has the resources and can usually pay the interest and then the principal.
When it comes to cryptocurrencies, the stakes are high. As MarketWatch reported late last year, around $3 billion was lost to cryptocurrency hacks in 2022, up from $2 billion in 2021. That's not counting the many pump and dump scams.
The combination of crooks and thieves is the most amazing thing the world has ever seen. Sam Bankman-Fried is in prison after a massive FTX fraud. Binance was fined $4.3 billion (it's unclear if the company has the money to pay) and CEO Changpeng Zhao was forced to resign after pleading guilty to money laundering.
Given the importance of their respective industries, it will be instructive to watch the NYSE and Nasdaq emerge from internal scandals.
If not an investment, cryptocurrency is a true digital currency. Not in the classical sense, when the properties require it. Let's start with the important features of the coin.
- A storehouse of values. Currencies must retain value and have value over time.
- Price stability. Currencies require a certain degree of predictability in their value.
- Medium of exchange. It is assumed that the owner of the currency will be able to pay for a wide variety of goods and services with it.
- Liquidity. Buying and selling currency should be easy.
- Portability. You must be able to carry currency and exchange it for other currency.
Its proponents will argue that cryptocurrencies do this, but in reality they do not. Even the most famous of them do not have predictable meanings. Below is a chart of Bitcoin, Ethereum and Litecoin displayed as an indicator. It doesn't show objective dollar values, but shows how your values have changed from where you were on January 1, 2020.
Here's a similar chart for the US dollar using the Federal Reserve's broad nominal US dollar index. But the graph is misleading because the scales are different. A big jump is probably a 10-12 percent increase in prices. As of July 2021, the drop is approximately 4%.
But there are big swings with cryptocurrencies, from hundreds to thousands of percent. They lack stability and probably lack fundamental store-of-value properties where a cryptocurrency coin can increase in value and then decrease. Remember that there are thousands of cryptocurrencies and many of them are likely to be highly volatile.
Even mainstream cryptocurrencies are not widely used to pay for things. When was the last time you bought food, hammers, gum and bitcoins?
It seems silly to talk about the digital power of cryptocurrencies because the broader concept of currency and money is tracked and implemented digitally. Credit and debit cards are digital transactions. Entry in the digital book of bank deposits.
Perhaps at some point, cryptocurrencies can play a legitimate and useful role. But not now.