FTX Collapse Shows How Easy it is to Make Poor “Investment” Choices
State Senator Tommy Tuberville made headlines recently when he said that FTX founder Sam Bankman-Fried “skirted the rules and that’s what you do when you really don’t know there’s a rulebook out there.” Many interpreted that as Tuberville claiming the FTX founder didn’t know what he was doing was explicitly wrong and that we need clear regulations implemented to protect consumers. Let’s be clear, first. He knew what he was doing was wrong.
I completely agree with the need to regulate cryptocurrencies and NFTs. Really, this should have been done a long time ago, and I have been beating that drum for over a decade. The problem here is that the fundamentals of these digital assets are not much different than that of a Ponzi scheme. How so? Because the only added value created from a digital asset like Bitcoin comes from additional people putting money in it to purchase it. Ponzi schemes, last I checked, are illegal. Don’t get me started on NFTs. Basically, someone tried to get cute and work around the concept that eventually leads you to label something a Ponzi scheme. If you’re in the yeah, but you don’t know [insert lame hipster fact] about crypto crowd, you’ve probably lost a ton of money already. So, how do we regulate digital assets if they’re inherently illegal? The same attorney that came up with the concept of a multi-level marketing company as a clever way to not be branded a pyramid scheme will have to answer that one.
I believe that many Americans who buy into speculative asset classes understand the risks of what they’re dealing with. They may not understand proficiently, but they know enough to know that what they’re doing has a large amount of risk. If you think about it, lotteries, futures contracts, options, casinos, and penny stocks are also speculative ways to invest gamble. So, what’s the difference? All of those items I mentioned are subject to regulations of some kind. So, don’t ban cryptocurrency and NFTs… just regulate them. Except wait, aren’t they a Ponzi scheme? Never mind, ban them.
At the end of the day, it makes little difference to me whether cryptocurrencies are allowed in the same capacity moving forward. I would say there is no way they get banned at this stage but regulations are inevitable and long overdue. As of today, the Bitcoin market is worth just over 300 billion dollars - more than the total value of Coca-Cola. When I see seasoned advisors putting their clients into crypto, I simply shake my head (and lose all respect for them). My advice? Stay away. Understand the difference between making a good investment and getting lucky. Otherwise, you will get burned one day - if you already haven’t. I have not and will not ever buy digital assets as a serious, long-term investment. I’d much prefer to go to a casino.
