I’m spending too much time going back and forth with crypto bros. I keep getting sucked into that damn rabbit hole. Every. Damn. Time. OK – so going to write out here something a lot of them will be able to digest in about 5-10 minutes of real work.

Where crypto people and I agree: “the need for sound money”.

What the crypto people get wrong: “This is the way. I’m going to put everything I have into this one crypto, which is different from that crypto.”

What I disagree with: I say, “You do not understand the risks of crypto”, and with this you have made a massive financial mistake.

Core disagreements are this.

  1. They have seen past performance of cryptos moon 100x in a week or so, and feel that any day ahead their coin (whichever you want) will also moon 100x.
  2. They want sound money, yet they think sound money can do a 100x.
  3. They use a particular window to discuss past performance of (enter coin here) and fail to understand the 5,000 year history of gold and silver.
  4. They do not realize that the blockchain was the technology – that has already evolved. They are invested in a token on a particular blockchain that is backed by nothing. The arguments they have against gold and silver, actually were solved by the blockchain and thus Kinesis, Lode, and CACHE have used the blockchain to then spend gold and silver at the grocery store or gas pump. It is, essentially, BTC moving from Cro Magnon to Homo Sapien as it merged technology WITH sound money (gold/silver)
  5. They do not understand the technology here, and speak in terms like “value proposition” and “the network” to pass on perceived value to others. I have 27 years working in IT, about 13 or so in some of the most secure IT areas on the planet working with cyber, PKI, etc. I have a master’s in cybersecurity, Sec+, and CISSP. I have managed cybersecurity teams (and currently do, among other teams). I have built crypto back ends with non-repudiation with 802.1x for certificate-based access across enterprise environments with RADIUS, NPS, etc. I understand CRLs, OCSPs, hashing, PKI at the bit and byte level. I have worked with Risk Management Framework in the respects of de-risking an enterprise from cyber risks. I have worked extensively with business impact and risk analysis from the view of IT, and understand many failure points that exist within the crypto sphere – and how investors do not comprehend this risk, or are blind to it.
  6. They cannot understand the asset classes they are dealing with – and make an equivalence to gold. Below I am going to discuss some of this
  7. Because they mis-classify the asset they are investing in, they also have a problem with how much to allocate to these asset classes. Gold has no counterparty risk and has no yield. The richest of rich might have 5% invested in it as a risk off asset to hedge against dollars they have. Cryptos are wild speculations that operate under 180 degree different asset class than gold. IF you think of it like “digital gold”, which it is not, you might also think of a prudent exposure to it like 1-5%.
  8. Now you do not understand the risk, and you now need others to get into your speculative risky bet in order to create demand and thus push value higher. This crowds a space and bag holders exit here and get their 100x as you are about to get rugged.
  9. With bitcoin, the perception is the supply is limited, and thus it is deflationary and the value must go up. The issue here is economics is both supply AND demand, and without a Saylor or other hype machine person, you have no demand. You are SPECULATING on a future demand that would make your “asset” go up in value.

I did an hour long video with Citizens for Sound Money with Jim Forsythe where I laid out what asset classes are, how items are classified – and how one might thus construct a portfolio based on these items. You can find it here, and I would beg anyone that invests in crypto to take this hour to watch. You spent 12 hours with the Saylor academy, but can’t spend 1 hour for a video that could save you hundreds of thousands of dollars of losses?

Below I am going to summarize the best I can for you.

  1. I looked at assets and broke down characteristics as if I was in biology class
  2. Currency was a means of transporting financial energy between asset classes. Whether it is cash or crypto currency, there is friction between moving this currency and it acts like heat lost in electricity. You cannot hold for long periods as the “charge” wears off and thus you need to get currency into one of three asset classes – money, business, or property
  3. I use money like “tangible items”. Gold was a tangible item and the currency was the $20 bill as a receipt for that item. Gold has relative value to all other raw materials, so therefore currency has value to items vis a vis gold. Currently, BTC has no established relationship to any commodity – or anything at all. This lack of relationship means that there cannot be a reasonable value established – perhaps not in the next 1000 years. Which is why it is not in the money category.
  4. Business is the means of putting currency into a process and growing its energy. You may use raw materials, sub processes, and property to do this.
  5. Property has a wide range from a baseball mit, to a washer, to a car, to a house, to bitcoin (Saylor calls it a crypto asset, not me).
  6. Given the above, bitcoin is the “property” and all of the crypto items not bitcoin are the currency.
  7. Main issue is the property (BTC) is unproven, risky, and has an unknown future.
  8. Investment yields and returns are usually based off of risk. Low returns and dividends are one end of the spectrum with low yields, and high return come from undeveloped beach front property which may get you multiples. MY assertion is that you are investing in this beach front property as if it is the low-risk dividend stock.
  9. Different age groups should invest differently based on their ability to recover from risky losses. I understand a 22 year old YOLOing $10,000 into a shitcoin (name any). This is different from a 32 year old with a wife and kid YOLOing $150,000 into a shitcoin. And this is most certainly different from a 55 year old moving their 401k/pension plans to a shitcoin.
  10. “Salesmen” and “pumpers” have a major vested interest in getting you to buy spec beachfront property alongside them, as it makes their spec land value go up when there’s high demand.

My major assertions are:

  1. 99% of the people invested in any form of crypto have no understanding of what asset class they are actually investing in. They THINK it has the safety and reliability of gold, they THINK it has the low risk of a dividend stock, but are not aware it is HIGH RISK/HIGH RETURN speculative PROPERTY that transmits with currencies that themselves run the risk of going to zero
  2. The “lack of regulation” will not fix the fact that you are betting on a HIGH RISK/HIGH RETURN Spec property
  3. Those who SPECULATE in crypto are free to do so. I have ZERO issues with this. HAVE AT IT.
  4. My PROBLEM is 99% of people do not understand the risk and volatility, and can only see their (enter shit coin here) going up 100x tomorrow. This is symbolic of an entire investor class who is not understanding the RISK they have and are speculators who think they are prudent investors. There are SPECULATORS out there who put small amounts of their net worth into these things. IF they go to zero, it’s a bug on their windshield. If these items go to zero for you, with your current high allocations to anything crypto, you are WIPED OUT.
  5. GOLD DOES NOT EQUAL BITCOIN, and any advertisement for 10 years brainwashing you into this was misleading, lying, and gave you a false sense of security.
  6. BTC has drawn back in value 90% a few times, and on its way again. That is not something that is stable and low risk.
  7. These exchanges are the wild west, and you assume these things will come up the next day like the sun.
  8. The “value” you have in these are with the “network”. If all of the exchanges go down, and no one takes them as currency, it leads one to believe there is no value
  9. Anyone involved in crypto has zero clue how the SEC and CFTC can blink and wipe them out in a future with CBDCs coming. The blindness to this risk is eye-popping, pun intended.

Here are some slides from my discussion…

Now we look at two ideas here….

SPECULATION

The issue here I’d have with “investing” versus “speculation” is that with investing, you are utilizing a risk/reward spectrum. You have ROI measures. You look at profit/loss. You can reasonably assess market value given a lot of inputs. The speculative nature of anything crypto-related is something a “savvy investor” would take into account given his/her particular age/earnings. If you are 22 and living on your mom’s couch and go all in on BITCOIN, that can go to zero and you are still living on your mom’s couch and have 43 more years of earning ahead to make that up. However, AS your life status changes, you go from a “growing wealth” to a “preserving” wealth situation, where you need to understand risks better with your investments. Those guys I see as BTC “speculators” might be in their 50s or 60s and have 1-5% in BTC.

When a Saylor tells people to sell everything and buy BTC, I see a junkie trying to get another fix.

I also have an MBA, so I have a background with financial and business analysis.

My main point to write this is to NOT discourage HEALTHY speculation, where your risk appetite is also balanced to minimally expose you to financial ruin IF your risky asset goes to zero – it is to beg the reader to understand what they think is a SOUND low risk investment in whatever crypto is out there is not sound and it is not low risk.

As I wrote before – anyone invested in any crypto, I HOPE you make your 10-1000x, but you are all mostly blinded to the risks while trying to chase those 100xs.

Best wishes to you…

Oh – and if you think sound money is a good idea, AND you like the blockchain, did you know you can buy gold/silver that is stored in a vault and spend it with a debit card at the store, using the blockchain? If you had a case for a token to buy that will have value in 10 years, would it be a token that is backed 1:1 with a gram of gold or ounce of silver, or “doge” coin who went up 1000% and crashed back down 90% because of the picture of a dog on a fake coin? My money is on the gold/silver on the blockchain. Check out Kinesis – it is an ASSET-BACKED digital currency.

Advertisement