I often write on Quora.com, where I am the most viewed writer on financial matters, with over 415.7 million views in recent years.
In the answers below I focused on the following topics and issues:
- Do you use or invest in any cryptocurrencies yourself?
- Is it possible to have a system with neither rich nor poor?
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Do you use or invest in any cryptocurrencies yourself?
The simple answer is no.
The reasons are:
- It hasn’t done what it says it will do. When I was first introduced to it in 2013, it was said to be many things. The main things were a currency at that time. Subsequently, it has been said to be:
- A store of value like gold
- An uncorrelated asset to the stock market
- A speculative investment
Most of these things haven’t turned out to be true….apart from a speculative investment.
There used to be an advert on TV when I was a kid in the UK. It would advertise a boring product like paint with the slogan “it does exactly what it says on the TIN”.
With crypto, it hasn’t done exactly what it says on the tin. It has been the opposite in many ways. It has been too volatile to be a currency.
It has also been heavily correlated to the stock market, especially technology – moving lower when the Nasdaq falls and higher when it rises.
2. One of the few things it has been a speculative investment, but I don’t speculate when I invest.
Besides, as I own my own business, investing in super risky assets doesn’t interest me, when I can make private investments that can yield cash flow.
3. Speaking of cash flow, most coins don’t produce any yield, coupon, or dividends. So, it is only worth what the next person will pay for it
4. It isn’t easy to buy the entire market like you can with stocks (ETFs and so on). This is a key point because let’s look at technology. Technology has been the best performing sector of the market in the ultra long-term, despite the volatility.
The Nasdaq has beaten the S&P500 and Dow Jones in the last 30-40 years, or even 22 years, despite the 2000 crash. Yet most tech firms went to zero. With digital currencies, there is the chance that even if it succeeds, only a select few projects (government and private) will succeed.
Remember, most tech investors eventually lost money in the 1990s/early 2000s, despite the entire market doing well over the long term. One reason is they invested in individual projects that went to zero.
5. Crypto hasn’t succeeded and has been tried and tested, during a global recession with higher interest rates and inflation. So, the next time that happens (whether this year or in ten), will be a huge test. What is more, the market cap was small from 2013-to 2018, during the last crypto bear market. This time, it is bigger.
Many investors bought at much higher prices than now. If it takes the market five or ten years to recover, will it ever recover, when many of the investors wanted a quick return? In comparison, certain stock indexes, REIT indexes, and some other assets have a 100% track record of coming back from bad times eventually.
6. The Bitcoin paper from Nassim Taleb, was a slam dunk. You can read the paper here – https://www.fooledbyrandomness.com/BTC-QF.pdf
Remember, Taleb likes the idea, in principle, of private currencies. So, he isn’t anti the idea. He just doesn’t think it will work.
I haven’t heard a convincing argument for the alternative. Perhaps the only good argument I have heard is that these coins are infrastructure like Microsoft is – especially with regards to projects like Ethereum and Cardano – and therefore the value-added is completely different from what most people said it was.
7. The risk of government intervention. What is an even bigger risk to the market than higher interest rates and all the issues I mentioned above? The risk is that governments will come in and induce people to give up private coins.
If the digital Euro, USD, and Pound are created once governments are happy with the technology, and they offer investors a fixed return if they cash in their private coins, then this could harm the market.
The next ten years could be key. If a bear market lasts for five years or more, governments come in with digital currency and try to take market share from the private coins, there are higher interest rates and at least one recession in the decade, and these private crypto coins come back, then that is a good sign.
Either way, it isn’t something to put all your wealth in. The price might go up a lot or fall to zero, but that doesn’t mean you need to be invested just because of the price movement.
I do not doubt that we are heading into an increasingly digital future, and government digital currencies will become big. I am just not convinced that most people will make money in these coins.
Either way, the next decade will tell us a lot.
Is it possible to have a system where there are neither poor or rich?
It has been tried in many countries. It has failed time and again in:
- The former Soviet Union
- Cambodia under Pol Pot
- Mao’s China
- Many other places as well. The list could go on and on.
It doesn’t work and goes against human nature entirely.
I went to the killing fields in Cambodia, and the experience was awful.
Often it is utopian types who are most likely to be brutal when they get into power.
What is more, somebody needs to “manage” such inequality, which often means that everybody is equally as poor, apart from those in power, who corruptly take advantage of the situation.
That is what happened before in most communist countries. The leaders weren’t equal to others. They didn’t practice what they preached.
Complaints about “fairness” often result in many wars as well. Often keeping, but improving, the status quo works much better.
We only realize what we have when something is taken away from us, as Covid-19 showed us. People complain and then years later look back at those periods as “the good old times”.
All private individuals can do is try to be good, and make money in the process, by offering value to others.
Being idealistic doesn’t usually solve anything, both for personal self-interest and for the wider good.
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Adam is an internationally recognised author on financial matters with over 830million answer views on Quora, a widely sold book on Amazon, and a contributor on Forbes.
