INVESTMENT

Crypto Dreamin? Good bad and ugly


By the way, back in 2014, I debated the virtues of Bitcoin with cryptocurrency missionary Andreas Antonopoulos. It wasn’t a nice, civic, and very disobedient dialogue. I was skeptical, not cruel. Today, six years later, I am skeptical but now there is a cruel bias.

Let me explain what I see as good, bad and ugly across the cryptocurrency landscape. I will not cover blockchain. For him, I have only optimism.

Good

  1. A democratic currency can only be described as good.
  2. A decentralized currency that no one can control – propaganda, absenteeism, or insanity – should be described as good by the government leader.
  3. A digital currency that does not recognize sovereign boundaries and therefore does not require any conversion taxes or restrictions is good.
  4. A coin is very useful for places that are not stable or developed.
  5. And hurray for a currency that is ready, perhaps very willing, and capable without the hassle of setting up an account for our global, digital world, capital restriction and other challenges.

If you believe the rules of the three, then those five should be enough to remove the doubt and start the life of our crypto dream.

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Bad guy

Whenever an argument is made, it is better to focus on the argument. Yes, I know that being a victim of emotions, as most media outlets do, is often the most effective strategy. But my “bad” argument can and should be massively filled with emotion – should it? – Still win my argument.

What if the world fully adopts a cryptocurrency? I mean, no more paper money. The social contract we fear today will be shattered.

Without knowing the reasons for the challenges of our social contract, based on their meaning, how will the “universal sovereign person” impose taxes to enable and support a social contract with their school, fire protection, police and safety nets?

A: They can’t, I can’t imagine, without violating – violating sovereignty – that would break the crypto kingdom. Moreover, social contract governments know this and will do whatever it takes to stop real isolation from their currency.

Now, revisiting the five “products”, because hope and promotion are not a strategy, we can lose the first one because a democratic cryptocurrency is fictional. Why? Because today, the big controlling hands influence the various cryptocurrencies that exist through mining or any other process. Cryptocurrencies are not distributed as some form of universal basic income (UBI). (To be sure, introducing a form of cryptocurrency could create a brilliant UBI, but it would be guaranteed to be controlled by a central, sovereign state actor. There is a lot to this idea.)

And, for those who find crypto remarkably anonymous, it’s not. Hello Blockchain – Real Dream Technology! There is a reason why governments have threatened or begun to remove larger printed paper coins. Hint, cash is much more anonymous.

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Ugly

All paper coins may be lost or stolen. Ugh! But crypto is apparently not more secure. There are big thefts and hacks and people lose their crypto keys all the time (UGH!).

And, don’t forget the famous bank robber Willie Sutton. Asked why he chose the banks, Wiley complained, “because the money is there.” Well, crypto exchanges are reasonably larger and easier targets than any bank today. And the exchange does not provide complimentary insurance.

As if it weren’t ugly enough, try to stomach these:

  • Cryptocurrency can be manipulated or scammed. It has already happened.
  • How would you feel about paying the equivalent of a few thousand dollars for a pizza? Yes, it has, DOH! If a cryptocurrency cannot be stable, why would buyers / sellers be motivated to use it? Excluding potentially invalid applications and possibly for collection, no use, no purpose. If not. . .
  • You see your cryptocurrency as an investment. Maybe not. Offer investment dividends or a yield. None of the cryptocurrencies. They are. . . Speculation, collectible? Does the world really need any more personal ornaments? And Digital Gold? Really? This is excellent marketing. But why not just buy gold?

To the end (something that never ends)

I am skeptical and not crypto dreamy. You also want to be careful.

In addition, the concept of a sovereign digital currency – the dream component of efficiency / effectiveness – can be dangerous. Take a moment and think of the temptation to tax, suppress, fine, or devalue with a one-button proverbial sentence if you have any kind of centralized control.

Fiat currency is not a panacea, but for me, today, I will take paper or plastic / credit, please, at least until decentralized digital becomes a reality.

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All posts are the author’s opinion. As such, they should not be construed as investment advice, or the opinions expressed must not reflect the views of the CFA Institute or the author’s employer.

Image Credit: © Getty Images / Travis Wolf / IEM


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Michael S. Fock, CFA

Michael Fock, CFA, CRC, is a partner at Focus Consulting Group and specializes in helping investment / asset management teams make their investment decisions and improve their companies through strategic planning and legacy. Previously, he was a chief strategist at a global macro LP and a chief investment officer in charge of perseverance and resource allocation for multi-billion dollar advisory practice. He is a frequent speaker and presenter at art events and is often quoted in the press. Falk is part of the list of authorized speakers at the CFA Institute. He has taught at the CFA Society of Chicago’s Investment Foundations Certificate Program, a contributing member of the Financial Management Association’s (FMA) practice-driven Academic Research Initiative (PDDARI) group, and a member of the DFP. FOCK 2.33 Book authored or co-authored: 2016 CFA Institute Research Foundation Monograph Let’s all learn to fish. . . To sustain long-term economic growth, 2019 follow-up Go to work . . In our future, And, with Jim Weir, CFA and Keith Robinson, Money, money and mentality.



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