Cryptocurrency Boom Doomed To Go Bust

Gullible investors keep jumping on the bandwagon despite frauds, crashes, lack of regulation, and absence of government backstops.

“There’s a sucker born every minute,” according to P.T. Barnum, who made his living capitalizing on the public’s gullibility. If that’s truly what “The Greatest Showman” felt and said, Barnum would’ve loved cryptocurrency, the biggest financial scam since Ponzi and his infamous scheme to defraud investors just over a century ago.

I’ve been a crypto skeptic since I started paying attention to this alleged “currency” in 2014, shortly after I left journalism to become a financial services researcher and analyst. I never understood the appeal of cryptocurrency—defined as a virtual form of money transacted solely online, lacking physical form or the backing of any nation, and free of government control.

I saw red flags galore, all obvious deal breakers to me, but apparently not to millions of enthusiastic investors who entered the market with their eyes tightly shut. In the decade since I first questioned the utility and value of crypto, in my view it is still just another get-rich-quick scheme—a dangerously speculative, volatile, non-transparent, fake “commodity” brazenly manipulated by unregulated insiders at the expense of oblivious novices practically begging to be ripped off.

After taking another deep dive over the past few months into this morass of shameless swindlers, I remain convinced crypto has no useful place in our economy or anyone’s investment portfolio. There are several reasons to reject the pitch of con artists touting these magic beans, who spend hundreds of millions in real U.S. dollars to advertise their naked emperor as the best dressed guy on Wall Street. The crypto world also lays out big bucks to intimidate and silence anyone daring to call BS on their charade or trying to protect people from being fleeced.

Among the issues validating my distrust and disgust:

The way the shady crypto world operates and how its dubious digital tokens are valued is beyond the understanding of most investors.

I spent my 43-year career writing about financial services, yet I still can’t make heads or tails of exactly what crypto is or how it works.

I’m especially unable to get my head around the arcane practice of crypto “mining,” defined by Bankrate.com as “the process of creating new [digital tokens] by solving extremely complicated math problems that verify transactions in the currency,” for which miners earn a commission.  Investopedia defines mining as “solving increasingly difficult cryptographic problems,” requiring “progressively more powerful computers….[to] register and validate transactions on the blockchain,” which is a public (and supposedly unalterable) online ledger.

But what exactly are these computer nerds “mining”? And what purpose do these digital tokens serve? I can hold gold, silver, and coal in my hands, and put them all to practical use. We can’t say the same about crypto, whatever it is.  

Yet about one in five U.S. adults have been convinced to invest in, trade, or use cryptocurrency, according to the Pew Research Center. That’s a lot of suckers. Some are even foolish enough to include crypto in their retirement funds!

Bottom line: People should never invest in anything they don’t understand. Only a handful of insiders get how crypto is created and valued, which is just how they like it, since a less educated buyer is their best customer!

It isn’t easy (and usually isn’t possible) to buy stuff with crypto in the real world.

Any “currency” should at least be commonly used to buy things, yet practically no one does so. And even though there are crypto debit cards promising to convert cryptocurrency into dollars for retail purchases and ATM withdrawals, there’s no overriding benefit in doing so versus all the reasons not to risk being hoodwinked and losing your entire investment.

Actor Ben McKenzie got bored during the pandemic and started fooling around with crypto, but the star of “The O.C.” and “Gotham” (a Batman prequel) didn’t like what he saw in this brave new world of virtual currency. McKenzie, who earned a degree in economics and foreign affairs before going to Hollywood, teamed up with Jacob Silverman, an investigative journalist specializing in technology and finance, to explore crypto’s dark underworld and nefarious players. They dove down the rabbit hole to produce a captivating book whose title says it all: “Easy Money: Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud.”

McKenzie strolled around Brooklyn, N.Y., in July 2023 with a reporter from The New Yorker, trying to pay for a burger, a slice of pizza, or a cup of coffee with his crypto app at three food retailers, to no avail. His digital “money” was literally no good.

I had a similar experience at my local bagel store, whose owner was paid by some shadowy entity to host a crypto ATM. He told me he had it removed within a few months because many of those using it looked rather “sketchy,” often hanging out to keep accessing their crypto accounts without buying anything, while taking up valuable table space and scaring away his regulars. None offered to pay him for food or coffee with crypto—which is a good thing, because he didn’t accept “funny money.”

Bottom line: As a payment option, crypto is virtually useless. What’s the point of having un-spendable “currency”?

Besides being a problematic payment option, crypto is a very high-risk investment.

Unlike securities or commodities, there’s nothing tangible let alone inherently valuable supporting crypto, which makes it at best a dubious investment. Securities (stocks) and debt obligations (bonds) are backed by a wide array of companies with publicly available, relatively transparent, and independently audited balance sheets. Commodities (like crude oil, corn, pork bellies, and gold) are based on the trading of actual things people use in the real world.

These investments create sustainable value while helping to launch, build, and grow individual companies and our overall economy, providing investors with concrete ownership rights and asset value that raises all boats. Crypto, on the other hand, appears out of thin air and can disappear just as mysteriously. Its value is based on absolutely nothing except what speculators are willing to pay for it. No one can even say for sure whether crypto is a security or a commodity.

As a result, there is often stomach-churning swings in crypto’s value, with the market experiencing multiple crashes that wiped buyers out—many of whom couldn’t limit their losses by selling what they had because their exchanges crashed along with its bogus currency. As recently as this past August, crypto suffered its worst crash since 2022, with Bitcoin struggling to stay above $50,000. Yet as this blog was published, crypto had soared back to a record high of over $90,000 on expectations of less regulation under a Republican-led U.S. government.

Making matters worse, fraud has been rampant, culminating in the catastrophic failure of crypto exchange FTX, leaving investors without much if any recourse for recovery. Unlike with U.S. banks or investment firms handling real money, there are no government insurance programs to bail out victims when crypto schemes go bust.

Bottom line: Crypto is more like chips purchased at an underground casino than an legitimate investment. And good luck cashing in your crypto tokens if your exchange implodes and absconds with your funds. Most lack anywhere near enough liquidity to return the real money you paid to play if there’s a crash, and there’s no government fund to rescue you.

The only people using crypto to sell and buy real things in any significant volume are criminal organizations.

Drug dealers, human traffickers, money launderers, arms merchants, cyber hackers, and other thugs doing business under the radar love crypto because transactions can be conducted anonymously on the blockchain, allowing them to operate beyond the reach of any government or multinational law enforcement agency.

Doing business via crypto makes it really hard if not impossible for the good guys to follow the money spent by the bad guys to finance horrible activities. What’s worse, those running the crypto world are often just as dishonest as the organized criminals taking advantage of their unregulated platforms, so what chance do honest people have at being treated fairly?

Bottom line: Crypto is empowering the world’s worst criminals by undermining law enforcement’s ability to spot, catch, and convict them, without providing any countervailing benefits to the public or global economy.

Crypto is virtually unregulated, leaving investors at the not-so-tender mercies of some of today’s most notorious fraudsters.

As noted earlier, government agencies charged with overseeing financial services can’t even agree on what crypto is or who should regulate it, let alone adequately police this shadow banking industry/pseudo investment product. Yet even if the argument over who’s in charge is eventually settled, crypto players have been able to avoid oversight and arrest by basing their operations in friendlier confines outside the United States.

Take El Salvador, whose president, Nayib Bukele (who has proclaimed himself “the world’s coolest dictator”) was convinced to go all in on crypto, making his banana republic the first country to accept Bitcoin as legal tender.

Among his cockamamie schemes is clearing away an entire community of homes and small businesses to build Bitcoin City—a tax-free crypto haven where Bitcoin could be mined, "powered by geothermal energy from a volcano,” and partially financed by the sale of $1 billion worth of Bitcoin in “volcano bonds.” Argentina is reportedly looking to follow El Salvador off a financial cliff.

You can’t make this stuff up!!!

Bottom line: While crypto is trapped in U.S. regulatory limbo, insiders are free to operate around the world like Bond villains, the personification of evil geniuses. 

Last but not least, crypto mining is environmentally unsound, wasting a ridiculous amount of energy.

Mining of crypto, which demands massive computational power and requires enormous amounts of electricity, is already overwhelming global efforts to reduce energy consumption and carbon emissions, thereby contributing to if not hastening global warming and catastrophic climate change.

While the U.S. Office of Management and Budget just recently began tracking such unproductive energy usage, we already know that Bitcoin mining alone accounts for more electricity usage than the entire nation of Finland.

To what end? For what purpose?

Bottom Line: There are far more useful and important ways to deploy precious energy resources than to support a fake currency of practical use only to criminals, operating beyond the reach of government agencies, and victimizing millions of investors.

What’s Next For Crypto?

Now that all these downsides about cryptocurrency have been exposed, the market will soon collapse as savvy investors realize the risks and race for the exits, right?

Not bloody likely!!!

Indeed, as noted earlier, the value of crypto keeps soaring to record highs, thanks in part to the industry’s marketing power and the corrupting influence of the real dollars they are showering on those in power. Crypto entities spent over $130 million in this year’s election to support legislators from both major parties who won’t regulate them, while viciously attacking those who refuse to climb on the bandwagon.

Rather than cite the benefits of crypto and demonstrate why it should be considered a safe and wise investment (which can’t be done with any credibility), the industry attacked candidates who are even suspected of backing stricter oversight. An in-depth report in The New Yorker described bullying campaigns to destroy crypto’s perceived enemies in Congress or local governments, sometimes as a warning to other lawmakers who might dare tighten the rules.

Included in these strong-arm efforts was the creation of industry-backed consumer advocacy groups, rallying customers to call or write their representatives and threaten to vote them out if they don’t keep their hands off crypto. Not even Barnum could have conceived of such suckers, defending the scam artists who are fleecing them while opposing those in government trying to protect them!

As if these strong-armed tactics and the amount of money behind them isn’t enough, voting Donald Trump back into the White House pretty much guarantees there won’t be any significant regulation imposed. Trump, who once called crypto a “scam,” changed his tune after getting cozy with crypto leaders, now pledging to make the U.S. “the crypto capital of the planet.” To seal the deal, Trump was given skin in the game, signing on about a month before Election Day with World Liberty Financial, a new venture that aspires to be a crypto bank, lender, and exchange. Trump’s title is “chief crypto advocate” while his three sons (including teenage Barron) are “Web3 ambassadors.”

While it’s an obvious conflict of interest for the incoming President of the United States to have a financial interest in promoting crypto while appointing federal officials trusted to regulate the industry, that didn’t seem to bother his voters, many of whom bought his ridiculous non-fungible tokens, including one showing him in a superhero outfit.

It’s also discouraging that even if Trump were to allow the Feds to crack down on crypto tomfoolery, there is no guarantee they will. In January, the Securities and Exchange Commission approved 11 applications to market exchange-traded funds based on Bitcoin, launched by major investment management firms led by titans of finance, who should know better than to get into bed with these scoundrels. If the supposedly smartest people in the room can’t help themselves from diving into crypto for fear of missing out, what hope is there to convince average investors to steer clear?

Has The Whole Financial World Gone Mad?

I can’t believe or understand why so many financial services companies and consulting firms are facilitating the mainstreaming of cryptocurrency despite the risks and lack of reliable supervision. It's as if Madoff’s Ponzi scheme was exposed, only instead of shutting him down, prosecuting him, and sending him to prison, Bernie was patted on the back, told to keep up the good work, and released to perpetrate his fraud on other saps. Or worse, that he was caught only to have his victims testify on his behalf, begging the judge and jury to let him go so he could continue stealing their money!

What’s next? Will President Trump pardon Sam Bankman-Fried of FTX infamy and name him Secretary of the Treasury?

We’ve gone beyond admiring an emperor with no clothes. As McKenzie noted in his book, the entire financial services court is running around stark naked, followed by clueless customers blinded by greed tearing off their clothes on their way to join the parade to ruin.

Meanwhile, as society’s supposed guardians struggle to control crypto or are forced out of the way, crypto players are flooding the market with commercials linking crypto to the cool crowd. Celebrity ad campaigns signal that although crypto is helping the rich get even richer, there’s still time for fans to get in on the action.

The NBA’s Lakers play in Crypto.com Arena, as its star, LeBron James, partners with the platform. The WNBA’s Commissioners Cup is prominently sponsored by Coinbase, a crypto exchange. Major League Baseball had its umpires wear FTX patches and displayed the FTX brand on telecasts, mlb.com, and social media—that is, until the corrupt exchange went bust.

Beyond the impotence of government to stand up to those inviting unsuspecting investors into their house of cards, I’m most disappointed in my fellow journalists, who were often just as gullible as their readers and viewers, too eager to promote the crypto fairy tale. The news media was missing in action, just as they were during the subprime mortgage crisis that nearly destroyed the economy.

Reporters and editors frequently demonstrated the same lack of healthy skepticism about the supposed wonderkids changing the world as they did when fawning over Elizabeth Holmes when she claimed to revolutionize blood testing. Sam Bankman-Fried of FTX was put on a pedestal and hailed in puff pieces as the new J.P. Morgan, or made the cover boy as the digital economy’s Warren Buffett.

What hope is there to warn people about the dangers of crypto in the face of such overpowering marketing, soul crushing lobbying, and pathetically underwhelming accountability by government and the press?

I suppose all we’re left with is caveat emptor—let the buyer beware. If millions more people are victimized because they don’t pay enough attention or do their own due diligence before dabbling or going hog wild with crypto, that’s on them. They can’t claim they haven’t been warned. And while it’s encouraging that about six-in-10 U.S. adults have little to no confidence that crypto is reliable and safe, according to the Pew Research Center, I fear those reservations may fade without serious pushback from government.

To close, I’ll quote a gentleman of much higher character than a huckster like P.T. Barnum. The one and only Abraham Lincoln said: “You can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time.”

For the sake of those considering a crypto investment and the health of our economy, let’s hope Honest Abe is right!