DEAR ALLEN: I have been thinking about investing in cryptocurrency. I believe I can make a fortune. What do you think?
— Wanting to Get Rich Quick
DEAR RICH QUICK: My short recommendation is “NO,” do not invest in cryptocurrency. Personally, I would take my chances shooting dice at a casino, if you want to gamble. The recommendation is based on:
1. The underlying factor in the media of exchange, which include money, precious metals, etc., is faith — faith that someone will accept a particular medium (for example, money) in return for something of value. If that faith doesn’t exist on the part of multiple parties, money is meaningless. Even purely specious money that is based on the “full faith and credit” of the weakest government has some reference point, a source of the guarantee so to speak.
While the concept of monetary creation is hundreds of years old through the use of notes, guaranties and bonds, there is always that source of underlying value, whether it be notes issued by private entities (for example, trading companies which financed journeys to the New World), notes based on escrows of underlying value (for example, “gin whistle notes” issued by cotton gins certifying that the gin was holding cotton for the producer), or guaranties and endorsements made by responsible parties (for example, negotiating a check or note with endorsements). The efficacy of the entire financial system depends upon faith, which in turn is based on some type of presumed constant underlying value (for example, gold standard, full faith and credit, collateral, etc.). As far as I can tell, cryptocurrency has no such foundation.
2. My second recommendation against investing in cryptocurrency is summed up in the first phrase of the last sentence in No. 1 above: “As far as I can tell.” Fully digitized money with transactions flowing through myriad stages having no foundational support and no single controlling auditing source (e.g. Federal Reserve, nation banks, etc.) provides multi-layered spider webs of complexity to the extent that, to my untrained eye, the entire system is analogous to a house of cards that could collapse at any time — with no discernable responsible parties.
The system is too complex, too unregulated (none at all, as far as I can determine), ripe for money laundering, and ripe for manipulation of investors, depositors and payees.
- Allen Wood Jr. is a seasoned Greenwood businessman. Send questions to him at email@example.com.