The dangers of embracing cryptocurrency

I have a friend, let’s call him Joe, who runs a small restaurant and is really upset about the recent stock market declines. I can’t blame him. We’re in a bear market now. It’s ugly. So, what does Joe want to do? He wants to take some of his assets out of the market and bet it all on — God help us — cryptocurrency in a desperate effort to keep his business running.

No! Just no!

That’s literally jumping from the frying pan into the fire. Yes, I’m a crypto-cynic. As far as I’m concerned, Bitcoin, Dogecoin, Ethereum, all the cryptocurrencies, are one big con job.

Investing company money in crypto is bad enough, but too many business owners are thinking about embracing it as an alternate form of payments — in effect, feeding the scam.

You might think the Gen Zers will just roll right in and buy what you’re selling, right? Well, just how well-versed are you on setting up a digital wallet? Especially for a mythical currency that’s not regulated, rises and falls like a roller coaster, and adds layers and layers of complexity and security concerns. Cryptocurrencies are major pains to track in your books. Ask your accountant, she’ll tell you.

Are you sure you want to get near this stuff?

Some crypto believers seem to be realizing this, too. Bitcoin tumbled to a new 18-month low and has slumped about 70% from its record high of $69,000 in November 2021. As I write, Bitcoin is falling towards $20,000.

Even major cryptocurrency exchange platforms are running into trouble. Coinbase slashed 18% of its workforce, or about 1,100 jobs, on June 14. In the meantime, Coinbase’s owners’ co-founders Brian Armstrong and Fred Ehrsam, President and COO Emilie Choi, and Chief Product Officer Surojit Chatterjee, cashed out in real money, not crypto, to the tune of about $1.2 billion in proceeds from stock sales.

Another top crypto exchange platform, Celsius Network, has closed its virtual doors. Good luck getting your money back!

So, back to my friend Joe. A small restaurant is always a chancy business in any economy, and he’s been having real trouble hiring and keeping employees. So he’s hoping he can convert a rapidly declining stock portfolio into cryptocurrency, win big, then cash out to keep his business afloat with the proceeds.

This won’t work. He knows I feel this way. But he’s bound and determined.

One of my oldest financial rules — and this goes for companies as much as for people — is that anything that looks too good to be true, is to good to be true. Back in the 2000s, I had friends who were sure that Bernie Madoff would be able to deliver 20% returns per year forever. In the biggest Ponzi scheme to date, Madoff admitted he actually hadn’t traded since the early 1990s. It was all a con.

But so many people want to believe in magic money. We think that if we just get our hands on that goose that lays the golden eggs, buy the right tulips, trust the right Miracle Man, or invest in a wondrous, mysterious cryptocurrency, we’ll be rich. And, all of our problems will be solved.

I’m sorry. It doesn’t work that way. It never will.

Speaking at a recent TechCrunch conference, Bill Gates said non-fungible tokens (NFTs) are “100% based on greater fool theory.” That is the truism that overvalued assets will go up in price as long as enough fools are willing to pay for them. He doesn’t believe that “expensive digital images of monkeys” are good investments. Gates wasn’t as harsh on cryptocurrencies; he believes in assets like “a farm where they have output, or like a company where they make products.”

For once Gates and I agree on something. No matter how much financial trouble you or your business is in, crypto or NFT snake oil won’t save you. Hard work and real investments are your only real hope. Same as it ever was.