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Opinion: Buying Bitcoin or any other crypto is a huge leap of faith and you don’t want to be a ‘bigger fool’


Investors in cryptocurrencies show an exciting leap of confidence that makes stock buyers think they never take risks.

It goes without saying that in order to make a leap of faith one does not have to believe that companies will not cheat shareholders. Enron and WorldCom, for example, are strong reminders that need to verify trust in publicly traded corporations.

We must not forget the level of confidence we need to believe that the Federal Reserve will not devalue the US dollar DXY,
-0.12%.
The fundamental value of the dollar has been damaged over the past 15 years by multiple rounds of quantitative easing by the Fed and efforts to keep interest rates low. In the process, the Fed’s balance sheet has grown from 800 800 billion in 2006 to more than 8 8 trillion.

Cryptocurrency was supposed to be better than that. Bitcoin BTCUSD,
+ 0.53%,
ETHERIUM ETHUSD,
+ 1.04%
And other cryptos were born out of resistance to blind trust in corporate and financial authorities, built on anonymous and decentralized beliefs. How ironic the crypto world has evolved in a process that requires even greater blind faith.

This does not mean that you should automatically avoid cryptocurrency. But don’t think that you are not dependent on the honesty of others. You should also keep in mind that, unlike publicly traded stocks and the Fed, crypto is not regulated – although there was widespread speculation that the SEC would impose such regulations.

Tether’s reserve

An example of this need for trust is the permanent mystery of whether Tether is USDTUSD,

Coins claim them from all their creators. Tether coins are a specific type of cryptocurrency known as a stable coin, designed to be redeemed at any time for US $ 1 per currency. Tether says it fully supports currencies with reserves, which the company defines as currency, cash equivalents and other assets, which it covers every stable coin.

But outsiders find it difficult to verify. I was somehow directed to this first, and I have no way or any other new information. Instead my point is to be amazed at how much crypto enthusiasts have faith in Tether’s claim.

How is this claim different, or more credible, from the federal law that is reserved for maintaining a stable price? I don’t want to side with the debate over crypto, which has become as polarized and emotional as our current politics. Instead my point is you abuse the myth that it doesn’t take blind faith to hold cryptocurrency.

Bitcoin and other crypto

Are you sure about how Bitcoin and other cryptocurrencies work, as well as their protection against vulnerabilities and risks from both known and unknown sources? Most likely, very few people who have bought crypto have such an accurate and comprehensive understanding.

You are not ashamed to admit it. If there is anything to be ashamed of, it is to insist that you are abandoning the blind faith by avoiding the Federal Reserve note (i.e. the dollar) and holding crypto. You are not.

Listen to Joachim Clement, a trustee at the CFA Institute Research Foundation and former head of equity strategy at UBS Wealth Management. In an email, Clement admits that despite having degrees in theoretical and particle physics, mathematics, economics and economics, “I get lost whenever I try to understand cryptocurrency. Come to a conclusion, or I’m unable to translate jargon and technical terms into something that makes sense. “

Yet it seems that there is no shortage of investors with seemingly limitless reserves of blind faith. Dogecoin DOGEUSD,
+ 0.70%,
Originally made as a joke, its market cap is now $ 32 billion. Another cryptocurrency, Shiva Inu’s market cap, rose to 14 14 billion after Tesla CEO Elon Musk tweeted a picture of his Shiva Inu dog.

Claude Erb, former product portfolio manager at TCW Group, highlights the characteristics of the crypto world’s reliance on religiously blind faith: in an interview he noted that no one actually saw the Bitcoin blockchain, and yet we believe it is all-wise and benevolent. He asks, “Is this different from believing in crypto-God?” “Faith requires a lot of leaps.”

Why this matter?

You can eliminate all of this by doing nothing more than involving investor gambling activities, which seems to be your investment motto “you only live once”. But in reality only Tether has grown so big that his downfall will have a huge impact on the rest of the financial system – not to mention your own assets. There will be a global impact that could lead to the collapse of key parts of the global credit and equity markets.

Many of my discussions with crypto enthusiasts remind me of the “larger stupid theory”. Accordingly, it doesn’t matter if Tithar is truthful about his stock, whether anyone has ever seen a blockchain, or whether you really understand how crypto works. The only thing that matters is that there is someone who will buy from you at a higher price – a bigger fool.

To explain the larger stupid theory, Warren Buffett made the following joke, which he said was told to him by his mentor Benjamin Graham:

“An oil inspector, on his way to his heavenly reward, received bad news with St. Peter. St. Peter said, ‘You are livable for habitation,’ but, as you can see, the oil is packed to the compound reserved for men. There is no way to get rid of you. ‘After thinking for a while, the inspector asked if he could say only four words to the current residents. It seemed innocent to St. Peter, so the inspector took his hand and shouted, ‘Oil has been discovered in hell.’

“Immediately, the gate of the compound opened, and all the oil men headed for the lower area. Fascinated, St. Peter invited the Prospector to come in and relax. The Prospector stopped.” No, “he said.” I think I’ll go with the rest of the boys. There may be some truth to this rumor. ‘

Before investing in crypto, don’t you want to be confident that you’re not the butt of a similar joke?

Mark Halbert is a regular contributor to MarketWatch. His Halbert rating tracks investment newsletters that pay an equivalent fee for monitoring. He can be reached mark@hulbertratings.com

More: Which way is crypto going after the recent rally of Bitcoin? Marketwatch gathers professionals to discuss perspectives. Register!

Also read: Crypto Complex reminiscent of the stock market of the 1920s, says ‘left-leaning think tank’



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