Cryptocurrency, it really should be called Crypto-stuff, it’s not currency or money or even a real thing that you can feel or touch. Cryptocurrency is just numbers in computers. It’s not that different from an Excel Spreadsheet that’s encrypted and emailed to hundreds of your friends to store a copy. Every time you make a change to a line, you update everyone else’s spreadsheet.
Of course, there needs to be a magical and mystical story that no one really understand to get investors to buy cryptos. Apparently, this is big business as more than 4,500 cryptocurrencies are in existence today. That got me to thinking…
Announcing! The All-New Mickey’s Cryptocurrency
So, let’s say I start my own crypto, let’s call it Mickey’s Cryptocurrency, and give myself 100 million shares and value them at a Penney each. I build a spreadsheet and get to making money. All I need to do is find someone who’ll buy a block of shares for 5 cents, he finds someone who’ll pay a dime, and some fool hears about Mickey-money and offers a quarter, then 50 cents. Social media sucks in more victims (we mean investors) who buy on the way up.
We then pay a famous entrepreneur a million dollars in Mickey-money to tweet something out about Mickey’s Cryptocurrency. Before you know it, newsletter writers are promoting my crypto saying that my “pretend money” has gone up in value by 500% or whatever.
“Surely, Mickey’s Cryptocurrency in the next miracle investment to save any portfolio! Why work? Why buy Stock? Mickey Crypto will make you rich, almost overnight.”
As a kicker, the newsletter writer (who we also paid) suggests it might go to $5 a share by next month… maybe $5,000 in a year. He goes on to proclaim— “Could this be the next Bitcoin and one day sell for $55,000 each?” You have to admit, that’s some great hype. Truthfully, I receive two or three emails hyping junk investments in crypto every week. But, I digress.
Back to Mickey’s Cryptocurrency
Let’s say our Mickey-money price goes up, wiggles some, a few corrections, but it keeps heading to the moon!
Suddenly, my pretend money has made me a fortune. I’m now worth $500 million dollars, less my modest expenses, less marketing costs. When I find myself with high demand and running a little low on crypto inventory, we just create, out of thin air, another 100 million Mickeys in my name to fill the demand.
Before long, I’ve taken in a billion dollars for myself and my coding buddies. All that was real, hard-earned money that somebody paid me to keep numbers on my Excel Spreadsheet. Now this is a business!
Of course, everyone who bought early could sell and a few folks might become very wealthy. All I have to do now is pay more people to hype my crypto and keep this scam going. At all times, you must find more buyers than sellers to keep a Ponzi scheme going. The scheme could last for years, even decades, just ask Bernie Madoff’s victims.
The All-time Most Popular Scam, Easier Than Hacking
Today, there are at least 4,500 cryptocurrencies with a total “paper value” of an estimated $2.4 Trillion Dollars. That’s a remarkable number today up from just a handful of digital coins in 2013. Note, however, that a large portion of these cryptocurrencies are duds. The top 20 cryptocurrencies likely make up nearly 90 percent of the total market— if you can call crypto a market.
Sadly, millions of unsuspecting people will eventually find almost all of the cryptocurrencies they invest in will be losing propositions.
Of course, the guys who invent these cryptos will sometimes walk away mega-millions. In my pretend currency, I might get away with $50 – $100 million Dollars of real money. Seems like an expensive cost to others to keep numbers in my spreadsheet and update it.
We’re not saying that the cryptocurrency-of-the-week or even the big boy Bitcoin is a scam. We’re just saying that ultimately you may purchase, for a high valuation, something that had little original value and questionable usefulness to anyone but drug dealers, hackers, and tax evaders.
A cryptocurrency is like a company that generates no income. It makes no money. The currency does not produce anything but itself— numbers in a ledger. Crypto pays no dividends. It has an indeterminate future value. You can only hope it will go up in value.
Crypto Sold with “The Greater Fool Theory.”
Here’s how selling cryptocurrency with the greater fool theory works.
- You buy believing somebody else in the future will pay more for it than you paid.
- You hope you’ll be able to sell it to someone in the future.
- Crypto promises to keep all your transactions private.
- When you sell, you will (illegally) pay no income tax or capital gains tax.
- Most cryptos have a “limited number” to ever be created.
- You buy knowing there is absolutely no government oversight.
- You understand that the government could destroy the entire crypto-system overnight.
While we understand the desire to gamble and speculate on cryptocurrency, we highly recommend moving cautiously and buying no more than you can afford to lose. You will probably lose a lot, maybe every cent you invest. Or you could make money— it’s a lot like playing a roulette wheel in Vegas.
The greater fool theory relies on big out-landish promises, setting high expectations, downplaying the risk, and confusing technical jargon. We’ve found these traits usually add up to a lousy investment. Except for the 4,500 high-tech nerds and their buddies who created these crypto-schemes, we feel it will be hard to money. Chart source: Statista.com