No one is watching
To re-cap, I am asserting that Bitcoin and other cryptocurrencies have no intrinsic value and that they automatically create a Ponzi Scheme. I have never heard a coherent answer to the question, “How do you figure bitcoin has any value?” And I get the same responses. 1.People want it to use as a “store of value.” This is ridiculous. A store of value through a product that has no value? How does the wildly fluctuating price create the view that it is a store of value? Because a lot of people claim it is. 2. The main value people see in it, is that it can go up. How is this done? By the tremendous demand it has. Has that kept going up? No, it was just hype and FOMO, (fear of missing out.) 3. “It is a hedge against inflation.” That really is too stupid to mention. These things get said over and over. These 3 are the mantra of the coin people.
Bitcoin, the first crypto, started in 2009. Word spread slowly at first then the gold rush came, then this latest crash. Who is watching? The Commodity Futures Trading Commission is in charge of “watching” 23,000 different cryptocurrencies. They just added 40% more people to their staff which is grand total of 80. If half of those employees are agents that would give each agent 575 Ponzi schemes to research, investigate, etc. for each agent.
Is it like a stock? No. Is it like a bond? No. It gives out no money. “What is the name of the company?” Um, there is not an actual company, it is just sold on the open market. “Who pays for all the costs and recordkeeping?” It is in a failsafe environment and cannot be ripped off. “Yeah, who says?” Also, when do I get my Bitcoins?” You don’t actually get a coin, the code that you own on the blockchain is the “Bitcoin.” “So, what do I actually own?” (the correct answer here is nothing.)
New cryptos start with a great story
“Hey there Bob, ever bought any crypto? No, I haven’t.” “Either had I but I started working for a company that sells a new crypto. Everyone says theirs is best or will grow the fastest, but almost all of those are scams.” “So why did you to work for this one?” Because this one, called “The People’s Crypto,” really is different!” You know how people told you that you could buy things with it?” “Well, that hasn’t happened, but with the People’s Crypto, those transactions are easy and assured. All the major banks have signed on to use it. Analysts predict because of the start up nature of this new coin, early investors who invest $25,000 will have between $140,000 and $260,000 in 12 months. The easiest way to invest is credit card if you have a high limit.” “I guess I can do $25,000.” “Smart decision, Bob. Very smart.”
The crypto salesmen above is lying. The point is these “crypto brokers” can say whatever they want. They don’t have to pass rigorous tests. What does a “crypto broker” need? A “Money Transmitter license,” which is the same license you need to open one of those check cashing stores.
The SEC is supposed to be regulating crypto, but it isn’t until they pass some laws. This is the same SEC that could not find anything wrong with Bernie Madoff after being at his office for weeks looking at documents. Eight times. After the humiliation of the Madoff case, they did not put protocols in charge to look at Ponzi schemes. The problem is that SEC agents know little about how the whole system works and have not sat around thinking about all the holes in it. They have never put together a group of people, on the ground, in the business to share ideas with.
The SEC should have their hands full. There are 23,000 cryptocurrencies in the US now. How could they know what is what? Why are they letting them start thousands more Ponzi schemes? It is mind numbing to think about how this is allowed to happen. The SEC has punted, sending some duties to the CFTC-Commodities Futures Trading Commission. But they are a child’s pail of sand against a Tsunami of fraud.
Side bets on Crypto
Just as our stock markets have set up exchanges to buy “bets on the side” in the form of derivatives (mainly options) people can bet (in the truest sense of the word) what the price of an underlying security will be. I am not sure why our government ever opened up that can of worms.
You can loan your crypto out at around 10% or put your crypto in a scheme called “staking” in which you volunteer to validate transactions on the Blockchain. You don’t actually do it, computers do but you are paid. Your crypto is frozen during that time unlike an underlying stock that is optioned. There are infinite amounts of shady things that can be done in this obnoxious wild west of crypto. As of now, none of it is regulated. Now brokerage firms can offer futures contracts on Crypto, Crypto mutual funds, etc. This is all the CTFC can regulate. For now.
Why do people buy Crypto?
The Gambling Instinct is extremely strong in humans. Crypto is gambling. It’s really worse than gambling, because when you win at gambling you have something to show for it’; cash. Many buyers, almost all actually, do not have the foggiest idea of what crypto is, the risk involved, the question of “what do I actually own?” and “why would it go up?”
The original promises of crypto: “Crypto will be used to make transactions that are untraceable from person to person. It will let people have a “bank” who don’t. It is totally secure and cannot be stolen, counterfeited or accessed by anyone but you.“This is future of money!” This is how you will buy everything you buy. “This will be a way for you to buy something from someone on the other side of the world and it is guaranteed to get there.”
Fast forward: Today none of these claims are valid. Anyone with the skills can look at your transactions on the Blockchain. Government can look too. So, the “untraceable” pitch was nonsense, as was the “average people with no bank can use it.” Since the price of the crypto is changing every second, why would sellers risk having the profit wiped out if the crypto goes down? What if the seller or buyer want to renege? You can’t, it’s a done deal. Every transaction is final. And as I mentioned last time, every time you buy anything, it counts as a gain or loss for tax purposes. So, the using it to purchase things doesn’t work. All of these were sales pitches invented by the founders of Bitcoin and copied by many others.
This is all not to say that Bitcoin and others can’t have another big leg up but there is no reason to. When buying a stock, there is information available to help you make an educated guess about future value, with crypto there is no telling when the last sucker gives up. In my view the whole industry must be shut down. When a company goes bankrupt, you know the cause. Losses. If you hold the stock you generally lose it all. But as the company is liquidated, you may get to claw back a little of the money. You also receive the proper tax forms. No one is responsible to send you accurate cost basis and gain/loss forms.
How would we shut down Bitcoin with that $600 billion dollars of funny money? There is no company that has to do the work, contact shareholders, etc. Bitcoin has no SIPC, FDIC, or private insurance backing. As owners you hang by a thread. Owners have chosen to keep crypto fortunes three ways: At an exchange like Coinbase which can be hacked like the original Bitcoin exchange called “MtGox.” It controlled 75% of all trades. All buyers lost all. It will always be a problem. If you don’t want it at an exchange, secure it in your own digital wallet. If you lose it you are done, if you lose the code it is all gone. You can’t memorize it. It is over a 100 characters long. There is no one to help you the next day when you are Googling “How to get my Bitcoin back?”
Here is the kicker on storing Bitcoin. 25%-29% of all Bitcoin has been lost. Gone forever. No concrete reasons are given. It is just gone. If the accounting for it is so precise, why do they have to guess at how many are missing? Currently is approximately 6 million of the 19 million plus Bitcoin that are lost.
Six Million Bitcoins Now Lost Forever? Why This Matters
https://www.newsbtc.com/news/bitcoin/six-million-bitcoin-now-lost-forever-why-this-matters/
March 15, 2023
These can never be recovered. People have simply lost track. Believe it or not, this article is about how people losing Bitcoin is a positive thing for the price of Bitcoin!
A question: If you were the holder of the last remaining Bitcoin, could you sell it? This is the final test for its lack of intrinsic value.
On a lighter note, I will leave you with this very fun article about a 15 year old who had started Ponzi schemes. By 21 he was opening his own Bitcoin exchange. At 30, he died suddenly while on honeymoon in India. He had all the codes. All 275 million of client’s money…Poof.
https://www.vanityfair.com/news/2019/11/the-strange-tale-of-quadriga-gerald-cotten
By the way, I now think “crypto” is the hardest word to type in all of the English language.
See you soon,
Craig-
For specific inquiries about investments, you can email me directly at [email protected]