Is Crypto Investment, Speculation, or Gambling?

Is Crypto Investment, Speculation, or Gambling?

QuestioningThere’s an age old piece of investment advice that states one must never invest in something you can’t understand. Well, ten years on and I still have no idea how cryptocurrency works. Even more, I simply don’t want to understand.

The idea of an investment that has few governing regulations, crosses international borders, and has no recourse against unfair practices scares the heck out of me. As a wise investor once said “there’s investments, speculation, outright gambling, and then there’s crypto.”

Is Cryptocurrency an Investment?

Many would argue no. Without regulation there can be no margin of safety. Is cryptocurrency speculation? Again, many would argue no. Even the most speculative investments have stock exchange rules they must abide by. No, crypto is a form of gambling, of the extreme wild west gunslinger variety. Many suggest that crypto is at best a bubble waiting to burst, and at worst the most elaborate Ponzi scheme in history.

Some will argue that assessment is incorrect. The wild volatility and fluctuations in crypto are simply part of the risk associated with the potential rewards. Crypto is the new age style of investment, beyond the scope of government control and taxation, and a haven to the enterprising global investor.

Note from Jim: I have a practice investment account in which I “purchased” a crypto ETF several years ago. As of today, it is up 33%. However, not long ago when I checked, it was down 25%. So if I sell it today, for all of the risk, I would have made less than 5% per year! I can easily get that with GICs without the risk. You can be sure that my real trading account will never see crypto in its current form.

Is Crypto Good?

Perhaps, but there is now a big flaw in the “crypto is good argument”. The first major crypto fund FTX has gone bankrupt with billions of investment dollars lost. Accusations of fraud and mismanagement abound and lawyers are lining up for a piece of the action. It could be bigger than Enron and very messy, possibly one of the most complicated fraud bankruptcies of all time.

Ironically, in the wake of FTX’s collapse, many long-standing advocates of blockchain technology have stepped forward to say the time has come for stricter regulations to protect the industry. I simply don’t understand crypto.

Contagion Fear

fear

Now that a major crypto firm has collapsed the biggest liability to crypto is a concept called contagion fear: the FTX bankruptcy could drag on for years, and kick off a major industry meltdown.

How can you ever feel secure about investing in crypto after the latest fiasco?

The Safer Way

There are safer ways to invest. Yes there will be fees, capital gains taxes and rules and regulations. It’s a small price to pay to ensure your wealth is safe.

Water BarrelThe BalanceIn my E-books (“Water Barrel” and “The Balance”) I discuss simple methods to live sensibly for today, take charge of your financial affairs, and invest safely for the long term. For more information please visit David Penna Amazon.

As always, I am not a qualified financial advisor. I just relate financial management to my own experience which may not resemble yours at all. Advice is frequently worth exactly what you paid for it. Most of mine came from expensive experiences.

Leave a comment