The Easy Way to get Rich… Isn’t.

Crypto currencies have confused the way we think about money and wealth. Its deliberate. It helps layer the crypto narrative they are modern and somehow better than fiat money. It’s fake news. Crypto is full of inconsistencies and outright bullsh*t – it’s time regulators did their jobs!

Blain’s Morning Porridge 25th November 2021 – The Easy Way to get Rich… Isn’t.

“The greatest trick the Devil ever pulled was convincing the World he didn’t exist.”

This morning: Crypto currencies have confused the way we think about money and wealth. Its deliberate. It helps layer the crypto narrative they are modern and somehow better than fiat money. It’s fake news. Crypto is full of inconsistencies and outright bullsh*t – it’s time regulators did their jobs!

Regulators have a lot to worry about.

I saw a scary headline in a US newsletter: “Nearly two-thirds of Gen Z think they’ll become crypto millionaires.” Sure, of course they will. Meanwhile, in the UK, the FCA recently did a survey of “young” investors, (those under 40) and found 76% participate in high-risk investments as a result of social media and peer group pressure to do so. Cryptocurrencies are one of the main areas of risk, yet 58% of these UK investors think Bitcoin is regulated by the FCA!

We all want to get rich.

Personally, I have a standing order to the lottery, occasionally bet on the Grand National (a horse race), stay away from poker games, and have £200 invested in a random selection of cryptos on Coinbase just to see what happens. Statistics and probability dictate none of these things will make me rich – but we can all hope. If I want to get seriously rich I will either have to invest very cleverly, or invent, innovate and succeed with some new and vital good or service to create my own wealth.

Alternatively, I could look to get rich by relieving other people of the burden of their money.

That’s the blunt and brutal truth behind cryptocurrencies. The message is simple – invest early and reap the rewards as the coin inevitably rises. In that respect it’s no different from the classic Ponzi; a steady flow of new entrants pays off the older members. What ill-informed participants understand is simple: buy and wait for it to rise and they are “on-paper” rich. Simple. They are urged to HODL to juice up prices of the scarce crypto – if everyone is holding in a hot market, then of course prices will rise, and the “greater fool” joins the rush to participate because prices are rising.

The greater fool has been a tragic figure through financial history. He’s a nice sociable chap, who has worked hard, built a small nest-egg and wants to pay off the mortgage and send the kids to a good school. Unfortunately, he was the last man to buy tulips at the height of the frenzy, bought the Southsea Bubble at the top, Railways in 1871, Florida Real-Estate in 1929, Cisco in 1999, and today is wondering whether he should buy Tesla and Ethereum.

Crypto enthusiasts develop something of the religious zealot about them in terms of their belief system. They sincerely believe scarce, digital, decentralised money is so much better than ready cash….  The more they are invested, the increasingly confident they become.

The scam works because such devotion is fuelled by hopes, and by the large and sophisticated ecosystem has now grown up around Crypto – all of which adds to its “credibility”. But it’s mostly bullsh*t; carefully layered nonsense, half-truths, downright lies and bogus statistics designed to support the narrative cryptos can only go higher.

The success of crypto boils down to layering – a term straight out of the regulatory playbook on financial fraud. Layering builds credibility in a con by adding successive stories to the overall narrative to give it credibility. Part of that is the “only clever people” scam: bitcoin hucksters explaining the unexplainable in terms that “only really clever can understand this, if you don’t participate, then you are stupid.” It’s probably the most successful con line in history.

Bingo… Its worked for crypto. Millions of people have bought the dream. Millions of us haven’t – begging the question who is clever and who is stupid.

The young, the impressionable and the greater-fool read headlines about digital gold, widespread adoption, hedge funds participating, banks offering crypto services, well-known investors talking huge positions… and Elon Musk. If these guys are in – then it must be real.

I’ve written too many times arguing that crypto is bogus, and is not money. It’s far too volatile to be a store of value, its scarce and not a unit of account. I could explain why it can’t possibly work as money because its likely to prove an inflationary accelerant, the eqivalent of pouring petrol on a fire.. (OK: if everything is priced in bitcoin.. how do you buy it? If everyone wants to buy a $100 item using Bitcoin, then everyone has to spend more dollars to buy the bitcoin to buy the item, but if the item is priced in bitcoin so it will cost more in real dollar terms, equalling immediate inflation.. If the item is priced in dollars… why take the FX risk buying bitcoin to buy the item you could buy in dollars anyway?)

I can understand why people get caught up in the crypto scam. They want to get rich and believe what they read on their social media feeds. They want it to happen to them. But, do they understand it. Do they do any work to investigate it?

Periodically, I delve into the myriad of utter bullsh*t that masquerades as the blockchain genius, the maths and computing logic behind cryptos. Read it yourself – its 10% fascinating and 90% utter garbage. Mathematical dyslexia puked out and dressed up as original thinking and “proof of concept”.

Don’t accept my word for it. Go read this article from Bitcoin magazine: “Why you should care about Taproot, the next major bitcoin upgrade”, and then explain what it means in concise plain English and why it will make you rich. It’s layering to give credibility to the con, with the added of kicker of making you feel stupid if you can’t understand the gibberish!

The primary rule of any investment is very simply: if you don’t understand – don’t invest.

If you invest on the hope it will all become clear in the future, you are only doing so because you are afraid you might look stupid. It’s the oldest con in the book. If you question it, you get directed to the bullsh*t texts to explain how it works. Definitionally: something that has to tell you it’s money, isn’t! (Thanks Professor Mark Blyth of Brown University, for that little gem.)

Then ponder the ESG good that Crypto brings the World. Read this article from Zerohedge: “How large-scale Bitcoin mining is driving clean energy production”. Please. That’s the kind of convoluted logic that ARK’s Cathie Woods invents to cover up the billions of tonnes of CO2 that’s already been pumped into the atmosphere by socially useless buttcon mining. More bullsh*t, greenwashing the environmental damage done by pretending its forcing energy suppliers to provide bitcoin miners with clean energy.. Get real.. do you really think a skeevey bitcoin miner hiding millions of machines in the wastes of the former Soviet South gives a damn where the electricity comes from?

Read that article alongside the FT’s recent piece on how China’s exiled crypto machines fuel global mining boom. Over 2 million bitcoin mining machines have now been shipped to the US, Canada, Russia and Kazakhstan to continue digging for digital gold…. And Venezuela? The crypto barkers will say mining in Venezuela has triggered an economic boom in solar panels… No it hasn’t… Bitcoin mining in poor South American nations is due to thin regulation, and means power prices rise and outages increase for the locals as corrupt politicians feed the crypto machine.

Why has Bitcoin and Crypto’s been able to run this long? I suspect it’s because the sheer bloody misery of modern life and lockdowns has made folk more susceptible and gullible.  According to a recent FCA press release “young investors are driven by competition and hype”. No Sh*t Sherlock. Who might have possibly think inexperienced investors are being sold impossible tales of boundless wealth, the value of investible intangible money only really clever people understand, and that companies with zero track record or profits are sure-fire certs?

The FCA commissioned a survey of 1000 investors under 40. They found 75% of younger high-risk investors say the feel competitive when investing in high-risk products. The FCA is investing in a new “InvestSmart” campaign aimed at helping consumers to make better informed investment decisions.

The survey confirms many uncomfortable truths. Young investors see investment as a game, a gamble and few regard it as long-term planning for the future. Young investors tend to assume they are protected and don’t understand just how their saving are at risk. A majority of young investors say they are driven by competitive pressure from friends, family and acquaintances. 58% say hype on social media informs their investment choices. Only 8% of young investors expect to hold investments for more than 5 years.

Finally, smart financial eyes will have spotted Invesco has pulled its plans to launch a Bitcoin futures ETF – taking the view regulatory constraints would make it too costly for investors, and suitability issues were not clear. ProShares did launch BITO, their Bitcoin Strategy ETF – and it proved the most successful EFT debut. Invesco might just have figured the reputational risk – what would happen in the event of crypto crash and liquidity locks solid.

Yet it does amaze me the SEC allowed Bitcoin ETFs based on Bitcoin futures, but still won’t allow an actual Bitcoin fund because they consider BC vulnerable to “fraudulent and manipulative acts and practices”.

I am quite sure Bitcoin and Cryptocurrencies will continue to surprise us all, and that the greater fool is still to be found just around the corner. Cryptos have thrived because social media, the internet and connectivity have made it easy to disseminate the con around the global markets at incredible speed. They’ve thrived because regulators haven’t stopped them – hat-tip to the Chinese for being ahead of the regulatory pack in that regards.

Someday… the last greater fool will want his money back… and regulators will be exposed for not acting earlier. 

 

Out of time, back to the day job

Bill Blain

Strategist, Shard Capital

27 Comments

  1. Yes what a load of b*ll*cks these guys just want to get rich quick etc etc
    Bill, I appreciate your daily commentary, genuinely. I am also open minded about Bitcoin and will always consider both sides, I definitely have reservations. But, while your commentary is evidently a cold shower of hard won wisdom, I barely see any detailed, logically argued reasoning about anything re Bitcoin and crypto. Unlike say your summaries on energy, monetary policy or others. Please, for our collective understanding can you present something considered and not just a ponzi rant. Ty

    • Interesting double negative challenge:
      Your defence of Crypto is based on me first proving Crypto is not better than money? You want me to mathematically demonstrate its a Ponzi?

      Hem….

      Crypro mining is polluting – fact
      Crypto has been bought by investors with limited experience – fact
      Crypto is generally still unregulated – fact
      Schemes like Shiba Inu and Floki highlight the nonsense – fact

      Now you prove to me that crypto is
      A) a means of exchange – its far too volatile
      B) a unit of account – its far too volatile
      C) liquid – who is the buyer when the price collapses and the market is offered only
      D) freely exchangeable – lets see..

      Interesting debate.. I look forward to being proved wrong..

      • You know I was just writing a thoughtfully worded response to you but then re-read some of your post and – what’s the point. All I can say is that the questions you pose are perfectly reasonable. But they have also been addressed ad nauseum by folks far smarter than me (e.g. first principle thinkers like Lyn Alden, Preston Pysh, Nik Bhatia, Dominic Frisby, Jason Lowrey – NOT Elon/Cathie) – the commentators you probably label as math/computing/blockchain ‘genius’ and this era’s charlatans. So then it boils down to whether you think their logic behind the entire value proposition of Bitcoin is ‘utter garbage’ or not. To me it makes a lot of sense, not all, but a lot. But hey that’s me my background is ‘only’ in engineering and technology, what do I know. At the same time, I want to understand the counterarguments, so to my original reason for posting on your blog – I’d love to see a post from you that properly explains WHY you regard that as garbage.
        And if you don’t understand it because it’s mathematical tosh, then I’m not sure how you can have strong views on it. That’s like saying you don’t buy into the idea of the internet because you don’t understand how the nuts and bolts of it work.

        • Nimesh

          Riddle me this:
          Go read the article from Bitcoin magazine i referenence in the article: “Why you should care about Taproot, the next major bitcoin upgrade”.
          If you can explain it in clear and concise plain English and explain why it will make us rich I will publish it on the Morning Porridge.

          Regards
          Bill

  2. Hi Bill,

    Enjoy your commentary as ever. Bit surprised that you haven’t mentioned the nice rally in the US dollar which has boosted returns for Euro based investors recently. Thoughts from here?

    Kind regards

    David

  3. Speculating is just a pejorative word for investing, so the big question is the asymmetrical risk of being wrong. What is the probability of, after the 4th or 5th major crash, all of these developers, ivy leaguers and idealists all trudge back to their 401ks? Winning the lottery is more likely. The hope of preventing governments from conducting governance experiments on live patients is too strong to walk away from, especially for a generation struggling to accumulate assets juiced up by central banks. There’s a clear, irresistible narrative that an awful lot of brainpower is working to fulfil and to gamble on that disappearing even after several major crashes have been retraced seems difficult to justify to clients.

    • I love this stuff about Crypto being real because its survived 5 booms and busts… Its meaningless… it just means someone has stumbled on the trick of retelling the story a different way. Outcome will remain the same.

      • One thing crypto hasn’t lived through yet, and this is my biggest concern about it, is a time without QE and artificially low interest rates. It’s not exactly news that financial assets have been massively juiced by central bank policies. The crazy numbers we see in crypto only show that unregulated financial assets have been juiced even more. I’m really interested to see what will be left when the punch bowl finally runs dry or is taken away…

  4. Bill,

    I agree with you 100% on cryptos in general and wouldn’t even think of dabbling with a couple of hundred pounds even though I could easily afford to lose it. What I can’t understand is why you appear to a lone voice setting out clearly the case against “investing” or rather gambling in them.

    I am going to send this article to my niece and nephew, as well as all my friends and acquaintances who I know to have susceptible offspring, in the hope that they will “read, mark and inwardly digest” every single line of it.

    Alistair

    • I do have money invested in Crypto – a) because i want to watch, and b) I may as well play the greater fools as they buy the nonsense around it.
      I have made 46% return in 6 months. Pretty impressive.. but is would picking 4 numbers in the lottery.
      But i still consider it absolute gambling – fueled by lies and deceit…

  5. There is another rule of investing as simple as, “if you don’t understand – don’t invest.” And that is, money goes where it is treated best.

    The fact is over the past decade no asset class has come close to the consistent ROI on bitcoin. It’s highly volatile, yes. And, for a traditional investor the wild swings might cause too much stress to tolerate. But, there is no arguing it has led to great returns for its investors.

    Cryptos aren’t currency, but they can be assets. They do have value. And, you are right, Bill. Of the thousands of crypto projects, the vast majority are crap. But, many blockchain projects will produce real solutions and provide value to clients. To cite just one, Theta has a blockchain solution for “the last mile” of video delivery. It’s run by a very smart team of M.I.T. guys. Like any young company, it’s gaining traction slowly. It isn’t making millionaires overnight. But it has garnered the attention of big video, streaming services, TV manufacturers, and so on. Over time, clients, investors, and the public will reap the rewards, just as with traditional investing.

    Let’s not just trash an entire industry with the Ponzi argument. Like any other investment, if you do some research on cryptos, you will find that there are some young companies with great ideas and strong development teams behind them.

    And, let’s also keep in mind that many countries in our world do not benefit from having a stable national currency. They are more likely to be open to alternative stores of value, bitcoin being one. We’re seeing that now in Central and South America. How that plays out, well we’ll just have to wait and see.

    • Thanks Ed
      I can see some applications for proper regulated global cryptos to add functionality… and that’s why a few weeks ago I looked at two particular cryptos as being possible components of a future carbon trading system.
      But otherwise, i am afraid the only value crypto has as an asset is what the greater fool is prepared to pay.

      Bill

  6. Re your riposte to Nimesh:

    Crypro mining is polluting – fact

    As polluting as the bloated, inefficient, and outdated tradfi system, with its creaking COBOL and Fortran infrastructure? As polluting as having you and thousands like you jetting around the world cobbling together deals for the wealthy? As polluting as the endless train of climate circuses for the glitterati?

    Crypto has been bought by investors with limited experience – fact

    And the NASDAQ hasn’t?

    Crypto is generally still unregulated – fact

    And regulators have done such a great job keeping us – and the financial system – safe?

    Schemes like Shiba Inu and Floki highlight the nonsense – fact

    As much nonsense as most of the IPOs spewing out of Wall Street’s bonus machine?

    Now you prove to me that crypto is
    A) a means of exchange – its far too volatile

    Could it be it’s the unbacked, ever-expanding fiat currencies that are volatile rather than crypto (and PMs)? Perhaps you should consider updating your frame of reference.

    B) a unit of account – its far too volatile

    See above.

    C) liquid – who is the buyer when the price collapses and the market is offered only

    No flash crashes in the (beautifully regulated) equity and bond markets when the bids go walkabouts, then?

    D) freely exchangeable – lets see..

    On this I agree – tradfi is the jewel in the crown of oligarchic control, so they can be expected to fight like dogs to suppress competitors.

    A couple of final points:

    1/ I’m half a century too old to be a starry-eyed Gen Z-er – just an ageing boomer who has spent a lot of hours trying to actually understand the crypto space rather than simply embark on endless rants. I’ve barely scratched the surface. There’s a lot more to the digital asset space than crypto alone. Crypto is simply a facilitator. If your rants are to hold water, you need to spend some time to better understand your enemy.

    2/ Why shouldn’t kids try to get rich quick if they want to? Our generation has screwed upward economic mobility such that the opportunities we both graduated to are largely not there any more. And your industry has become nothing but a vacuum cleaner sucking wealth from the ‘lower orders’ up to the wealthy – the sort of people who invest in the alternatives from which you earn your money and from which ordinary mortals are excluded.

    • Riddle me this:
      Go read the article from Bitcoin magazine i refenence in the article: “Why you should care about Taproot, the next major bitcoin upgrade”.
      If you can explain it in clear and concise plain English and explain why it will make us rich I will publish it on the Morning Porridge.

      Regards
      Bill

  7. Several years ago I was given a rousing endorsement of Bitcoin. I was getting a cappuccino in Santa Rosa Ca, the lovely young lady behind the counter explained her plans to invest the money she received for her high school graduation in Bitcoin. She exclaimed – “All my friends are doing it”.

    That was all I needed to stop me from ever buying crypto.

  8. Was it Warren or Charlie who called bitcoin “rat poison squared”? I can’t recall, but I’ll take their word and Mr Blain’s reasoning over the wishful thinking of crypto proponents and followers any day.

  9. I think that you should have mentioned the role that central bank policy has played in bitcoin acceptance. Bitcoin is a symptom of our monetary policy. The countries where it is accepted as legal tender have totally failed economies (as opposed to partially failed economies in North America and Europe).

    I am new to this site so I don’t know if you allow links to other sources but I am linking an article by John Hussman where the title says it all (“The wealth is in the denominator”). He is talking about P/E ratios or any other ratio where “earnings” are in the denominator. The wealth is in the earnings and not in the price and that is the case with Bitcoin. No earnings so no wealth. I am being somewhat inconsistent because I do own a small amount of gold in my portfolio and it has no earnings. https://www.hussmanfunds.com/comment/mc211015/

  10. Love my morning porridge. Thanks Bill. Always fascinating, erudite, insightful and …funny! Refreshing to hear plain common sense amidst the noise and bs. Keep up the good work, thanks.

  11. Whoa you’re hurting some feelings here I can tell. I still haven’t seen a real good understandable explanation of how Bitcoin has any real value though. It might be a Ponzi scam.

  12. Have you thought about minting this article as an NFT….? Great article and some smart comments too.

  13. Crypto can definitely make you very rich, but only if you created the coin or are an early investor. Given the amount of excess money flowing around, it’s one of the best times to sell dreams and capture real dollars.

  14. Ten years ago, a friend of mine was despondent. His son had dropped out of high school and was spending all the money his mother gave him, on on-line-poker. Last week a colleague lamented that his son had just turned 18 and was putting the nest egg his parents had saved for him, into crypto. The kid was furious that his parents had bought him boring old stock. He claimed he would be rich, if they had bought him crypto from birth!

    I guess the point is, there have always been scams and fools. The only reason you (we) are interested in crypto is that it makes a good job of masquerading as investment. As I suspect tulip buds did in the days.

  15. Great article.
    If I sell nothing to my mate for a pound, and he sells nothing to his mate for £2 and so on. Soon nothing will be worth quite a lot of money, until one day it isn’t.

    • Yep… that sums it up.
      I was reading about the court case around the $60 bln tied up in a wallet that might or might not belong to the mythical Sakatoshi Nakamoto… hilarious..And its the basis for a currency better than the greenback or sterling… please..

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