I have a friend, let's call him Joe, who runs a small restaurant and is very upset about the recent stock market crashes. I can't blame him. We are currently in a bear market. He's ugly. So what does Joe want to do? He wants to take some of his assets off the market and bet it all on, God help us, cryptocurrency in a desperate effort to keep his business going.
Nope! Just no!
It is literally jumping out of the frying pan into the fire. Yes, I am a crypto-cynic. As far as I'm concerned, Bitcoin, Dogecoin, Ethereum, all cryptocurrencies, are a huge scam.
Investing company money in cryptocurrency is bad enough, but many business owners are considering adopting it as another form of payment, in effect fueling the scam.
You would think that Generation Z will come and buy what you are selling, right? Well, how familiar are you with setting up a digital wallet? Especially for a mythical currency that is not regulated, it goes up and down like a roller coaster and adds layers and layers of complexity and security issues. Cryptocurrencies are a huge pain to track down in your books. Ask your accountant, she will tell you.
Are you sure you want to get close to this thing?
Some crypto believers also seem to realize this. Bitcoin has fallen to a new 18-month low and is down around 70% from its all-time high of €69 in November 000. As I write, Bitcoin is falling towards €2021.
Even the major cryptocurrency exchanges are having problems. Coinbase cut 18% of its workforce, or about 1100 jobs, on June 14. Meanwhile, Coinbase owners co-founders Brian Armstrong and Fred Ehrsam, president and COO Emilie Choi, and chief product officer Surojit Chatterjee were paid in real money, not crypto, to the tune of roughly €1.2 billion in proceeds from the sale of shares.
Another major crypto exchange, Celsius Network, has closed its virtual doors. Good luck getting your money back!
Let's go back to my friend Joe. A small restaurant is always a risky business in any economy, and it has a hard time hiring and keeping employees. So he hopes he can convert a rapidly declining stock portfolio into cryptocurrencies, earn big, and then cash out to keep his business afloat on the profits.
It will not work. He knows I feel this way. But he is bound and determined.
One of my oldest financial rules, and this applies to businesses as well as individuals, is that anything that seems too good to be true is too good to be true. In the 2000s, I had friends who were sure that Bernie Madoff could generate returns of 20% a year forever. In the largest Ponzi scheme to date, Madoff admitted that he had not actually traded since the early 1990s.
But many people want to believe in magical money. We believe that if we get our hands on that goose that lays the golden eggs, buy the right tulips, trust the right Miracle Man, or invest in some wonderful and mysterious cryptocurrency, we will be rich. And all our problems will be solved.
Sorry. It doesn't work that way. He never will be.
Speaking at a recent TechCrunch conference, Bill Gates said that non-fungible tokens (NFTs) are "100% based on dumb theory." It is a truism that overvalued assets will increase as long as enough fools are willing to pay for them. He doesn't think "expensive digital images of monkeys" are good investments. Gates wasn't that hard on cryptocurrency; he believes in assets like "a farm where they have production, or like a business where they make products."
For once, Gates and I agree on something. No matter what financial difficulties you or your business encounter, crypto snake oil or NFT will not save you. Hard work and real investments are your only real hope. Like before.
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