It could be gut feel, intuition, or a case of ‘I just don’t get it’, but I am growing increasingly more nervous about the damage that’s likely to be inflicted on the unsuspecting by the collapse of the crypto Ponzi scheme.
To provide some clarity to my thinking, let me start with two quotes.
‘One can be long-term bullish on the value proposition of decentralized finance and still view the [crypto] market as a casino. It’s not incompatible.’
Bernhard Mueller (a security auditor and engineer in the
blockchain space for three years and participated in audits
and formal verification of DeFi protocols such as Aave, Bancor
and mStable which also involved assessing economic risk)
‘Two things are infinite: the universe and human stupidity; and I’m not sure about the universe.’
Let’s assume a decentralised financial system (DeFi) awaits us on the other side of all this crypto trial-and-error process. That’s great. But what value, if any, can be attributed to this system is largely unknown.
It’s this misplaced notion of ‘first-mover advantage’ that has investors (mug punters) storming the crypto casino.
Before presenting my case for the negative on cryptos, there are many who take the opposing view.
One of those is my good friend and fellow editor, Ryan Dinse. Ryan has been investing in crypto since late 2013. He is a strong advocate for the disruptive potential of cryptocurrencies and decentralised finance.
Ryan is hosting an online event to share his cryptocurrency trading strategy.
If you want Ryan’s yin to my yang, you can reserve your FREE spot here.
In my opinion, the current ‘everything bubble’ is living proof of Einstein’s insight into human nature. It appears there is no limit to human stupidity.
What do you get when you buy Bitcoin [BTC]?
There is no asset, no income stream, no cash flow, no dividends, no customers. There is absolutely NO value. None whatsoever.
All that you’re getting with this stuff is the promise of a Promised Land. But this DeFi Garden of Eden may not even exist.
Legislators and central banks could conspire to blow it to kingdom come.
The crypto market is nothing more than a giant Ponzi scheme…one that’s providing a golden opportunity for criminals and terrorists to exploit.
The pricing of crypto relies on the infinite stupidity of people to believe this stuff has any real value.
Speculation begets speculation. The scam gets perpetuated and prices rise. A feedback loop of stupidity is put in motion.
The current crop of fools needs to find even bigger fools…hence the narrative of HODL. Just hold and wait, a fresh batch of lambs to the slaughter will come along in the next price surge.
But what happens when there is no next surge? ‘Impossible!’ I hear the devotees scream.
With retorts like that, I wonder who’s showing their naivety now?
Did tulips rise again? No. Mississippi land? No. The Dow after 1929? Ah, you got me there. But did you know it took 25 years for the Dow to eventually pass its 1929 high?
And the Dow had something cryptos don’t. Real companies with real assets producing real products, generating real cash flows, and paying real dividends.
Which begs the question…
What has Bitcoin contributed to society?
According to The New Republic on 3 June (emphasis added):
‘We’ve had a decade-plus of cryptocurrencies, and their main innovations appear to be new forms of wasting natural resources and extorting innocent people for money.’
That pretty much sums it up in a nutshell.
The article did acknowledge…
‘Perhaps, one day, the promised decentralized financial system—one that’s supposed to be liberated from the surveilling eye of the state and the harsh yoke of tyrannical central banks—will arrive.
‘Perhaps it will even bring about shared prosperity and not just reproduce, or exaggerate, the existing inequities of our highly financialized, turbo-capitalist economy. But that day still seems far off.’
Until that day does arrive, the problems created by Bitcoin outweigh any promised solution.
To quote from the article (emphasis added):
‘With conventional banking off-limits, “the ransomware problem is a Bitcoin problem,” wrote Nicholas Weaver, who researches computer security at the International Computer Science Institute.’
How big is the ransomware problem?
Headline from the WSJ on 11 May:
As reported, the problem is escalating…
‘Ransomware has passed from a minor inconvenience to a widespread threat against major infrastructure, both in the U.S. and around the world. Last year, 2,500 cases of ransomware were reported to the FBI, with $350 million in cryptocurrencies paid out as ransoms.’
Some governments — depending on which side of the argument you are on — are either trying to tackle this problem before it gets out of hand, OR using this as an excuse to demonise cryptos to promote the use of their own digital currency.
Bitcoin’s latest fall was a result of China flexing its regulatory muscle. As reported by News.com.au (emphasis added):
‘A key CCP [Chinese Communist Party] financial regulatory body issued a new ruling on Friday [18 June 2021]. It says cryptocurrencies are “seriously infringing on the safety of people’s property and disrupting the normal economic and financial order”.’
It can be argued that US$350 million is a drop in the ocean of corruption. True.
But it can be equally argued that unless this problem is addressed, what we’re seeing could be the thin edge of a very wide wedge.
Tech and crypto commentator Stephen Diehl recently wrote:
‘Imagine…a time in business in which every company simply just allocates a portion of its earnings upfront every quarter and pre-pays off large ransomware groups in advance. It’s just a universal cost of doing business and one that is fully sanctioned by the government because we’ve all just given up trying to prevent it and it’s more efficient just to pay [in Bitcoin] the protection racket.’
Diehl also asks us to imagine what it would be like if ‘entire cities randomly have their metro systems, water, power grids and internet shut off and on.’
We could be one major ransomware attack away from governments having the public support required to hobble cryptos with legislation, regulation, and possibly confiscation.
With the road to the Promised Land blocked by statutes and sanctions, what’s the value proposition in this stuff?
Zero. Zip. Doodah.
And people can’t say they haven’t been warned…
This forthright assessment of Bitfinex and Tether by New York Attorney General, Letitia James, gives you an insight into how this casino operates…
‘Bitfinex and Tether recklessly and unlawfully covered up massive financial losses to keep their scheme going and protect their bottom lines. Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie.’
Editor, The Rum Rebellion
PS: Vern is also the Editor of The Gowdie Letter and The Gowdie Advisory — investment services designed to help everyday Australians avoid the financial pitfalls of a volatile economy and make informed decisions to grow their wealth for generations to come.