On Monday this week, Sam Bankman-Fried, the chief executive of the cryptocurrency exchange FTX, took to Twitter to reassure his customers: “FTX is fine,” he wrote. “Assets are fine.” On Friday, FTX announced that it was filing for bankruptcy, capping an extraordinary week of corporate drama that has upended crypto markets and sent shock waves through the industry. In one week, the company valued at $32 billion went to zero and took a host of investors, VCs and pension funds with it.The price of bitcoin, the most popular cryptocurrency, dropped below $16,000 this month, a year after it reached a record high of $69,000 in November 2021. The implosion of FTX is already referred to as the industry’s “Lehman moment” — a reference to the 2008 collapse of Lehman Brothers.
Of course, this disaster has prompted calls for increased regulation of crypto currencies. But, we ask a more fundamental question – “How do you regulate if you can’t value crypto currencies?”
Future Wealth’s View
Unlike traditional investments such as company shares, where price movements may well be influenced by the performance of the business, bitcoin and all other crypto currencies have no underlying asset. This means that the movements in its price are based purely on speculation among investors about whether it will rise or fall in future.
Way back in June 2018, when bitcoin was all the rage amongst investors (typically the ones who did no research before placing a buy order randomly), we had written a report cautioning investors. The report was titled “Bitcoin tests the greater fool theory once again”. In that we had stated that “Much like people, who want to lose weight, would rather buy shakes, drinks, pills, surgery, gadgets, etc. instead of just eating less and exercising more, rational people do irrational things all the time. And we need to look no further than Bitcoin holders to find a host of people behaving irrationally.” The link to the article is here – https://futurewealthllc.com/
At best, crypto is a scam. At worst, it is a fraud. Wise investors would do well to stay away from anything related to crypto. As an alternative to crypto, there are thousands of charities who would welcome a contribution to a worthy cause. Atleast, you get a tax deduction. With crypto, you get nothing.