November 5, 2024

Opinion | Think you’re the one to beat the crypto crash? Think again.

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I generally don’t seek financial wisdom from college students, so when I began to hear last year from my kids that their classmates were putting money into cryptocurrencies, I got concerned. With all due respect, this is not, as a rule, a financially knowledgeable or savvy crowd. When one of my sons asked skeptically whether it wasn’t just the latest Dutch tulip craze, a fellow student said it was different — “You need to know when to get out.”

Well, it might not be so different after all, because it turns out many people lack that ability. When TerraUSD, a stablecoin — that is, a cryptocurrency that is supposed to be pegged to the dollar or another asset — lost almost all its value this month, it happened so fast that many investors lost whatever they had in the market. Another stablecoin, DEI, went as low as 52 cents, instead of the dollar promised. Bitcoin itself, which is not pegged to any currency, is down more than 50 percent from its high point last fall.

In many cases, it’s those who can least afford to take this sort of loss who are taking the hit. Crypto has been aggressively marketed as a chance to catch up to groups who felt left behind in the forever unequal United States. Over and over, partisans declared that blockchain would be a force for financial equity, empowering people traditionally shut out of American wealth-building mechanisms, such as housing or the stock market, by race or lack of capital.

Matt Damon proclaimed “Fortune favors the brave,” for Crypto.com, an exchange platform where people can buy and sell more than 200 cryptocurrencies, in a commercial that aired during the Super Bowl. (He’s now, in rather less brave fashion, declining to answer NBC News’s questions about it.) Kim Kardashian shilled for a coin, one that soon dropped by 98 percent. Politicians made the argument that crypto would make the financial world more equitable. Rep. Ritchie Torres (D), who represents a low-income district in the Bronx, called it a “profoundly progressive cause.”

Please. This is, at best, speculation. For all the claims the blockchain will revolutionize finance, the only thing it’s so far improved on is the ability to launder cash and transfer money as part of other illegal activities. An inflation hedge? A theory that didn’t pan out. A substitute for cash? Try using it. It’s difficult and time-consuming, and I promise you you’ll flee back to traditional currency immediately.

The issues go on. Regulation is light to nonexistent. Theft and fraud are rampant, and victims have no recourse. If your credit card is jacked, you’re on the hook for only $50, but if your multimillion-dollar crypto wallet is picked, you are SOL, as they say online. And for all the talk of letting everyone get in on the action, slightly more than 25 percent of bitcoin is held by 0.01 percent of investors in it.

Yet 1 out of 5 Americans old enough to invest took the bait, many who couldn’t afford the risk. Poll after poll finds the young more likely to embrace the sector than the middle-aged and older people, and Blacks more than Whites. And one other thing: Half began putting money into the sector in 2021, according to a survey released by Grayscale Investments, a crypto management firm — in other words, when crypto was at record highs. (A survey conducted last fall by Cardify, a market research firm, found only 14 percent had been invested in the sector for more than two years.)

None of this should inspire confidence. That’s true whether you sincerely believe the world has yet to harness the power of the blockchain, or if you believe, as the wits on Twitter put it, that the blockchain and its cryptocurrencies are Beanie Babies for Bros, disguised by techno-libertarian gibberish.

Even if all the potential for Web 3.0 is realized, and the blockchain is its primary architecture, that doesn’t make this stuff a good play. The railroad was a revolutionary technology in 19th-century America that created untold fortunes for a lucky few, but about 25 percent of railroad companies landed in bankruptcy after the Panic of 1873. The same thing happened again after the Panic of 1893.

The dot-com bubble offers a similar lesson: Amazon did so well that its founder now owns this newspaper, but Pets.com is a punchline. As Securities and Exchange Commission chair Gary Gensler recently put it when discussing crypto, “I don’t think there’s a long-term viability for five or six thousand private forms of money.”

It is a mark of, well, marks that they think they can outsmart all this — they will pick the cryptocurrency that both survives and soars, or will know the precise right moment to get out. They can’t all be right.

Crypto hits that American sweet spot, where cynicism meets utter naivete, and where everyone thinks the sucker at the table is someone else. By the time many discover they are the greater fool, it is much too late to do anything about it. That in many cases they are people who are already getting a raw deal just makes it that much more painful.