More than 25,000 crypto[1] enthusiasts, double last year’s attendance, converged on Miami in mid-April for the annual Bitcoin 2022 conference. The majority were Millennials and Gen Xers—and surely some folks of all ages in search of fast and easy money.

Keynote speaker, billionaire (No. 552 on the Forbes list of global billionaires with $5 billion) venture capitalist Peter Thiel, who by 2018 had reportedly amassed hundreds of millions of dollars in Bitcoin, set the tone, but not before spewing vitriol. Forgoing civility, he launched into an attack on Warren Buffett, whom he called “the sociopathic grandpa from Omaha,” placing him at the top of an “enemies list” of people seen as trying to stop the cryptocurrency wave. An equal-opportunity critic, he pilloried JPMorgan CEO Jamie Dimon and BlackRock CEO Larry Fink as well. It was reported that the Miami tirade is Thiel’s latest and boldest public attack on the people he sees as standing in the way of Bitcoin’s progress. “This is what we have to fight for Bitcoin to go 10x or 100x from here,” Thiel said. Crassly feathering his own nest … he seems in search of yet more hundreds of millions in easy money.

Gary Gensler, chairman of the SEC since April 2021, has also incurred the wrath of Thiel and other crypto advocates. They have accused the federal regulator of presiding over an unwieldy bureaucracy that is out of touch with the new technology. Gensler, it should be noted, is no stranger to the subject of crypto. Before joining the SEC, he taught a 24-part, soup-to-nuts, online crypto course at MIT’s Sloan School of Management. The course is an open-source offering, which I audited. In observing Gensler’s interactive teaching style and, judging from the MIT graduate students’ questions and answers, it seemed apparent that even highly educated millennials have difficulty understanding the expansive and complex subject, which is a curious blend of technology, sociology, and psychology.

Ironically, despite his dim view of the SEC, Thiel and others are actually advocates of greater SEC oversight. This is precisely because they are aware of the difficulty of imposing an effective regulatory framework on the rapidly mutating, comparatively nascent technology. It’s window dressing that looks good when there is no practical way to functionally impose accountability. I note parenthetically that even a general awareness of behavioral economics equips one to understand that monetary incentives can promote antisocial behaviors, particularly when so-called experts have reason to exploit the fact that they know more than you do. Fast and easy money?

Shilling for Crypto

A couple of months earlier, commercials aired during the 2022 Super Bowl were no doubt scripted for Millennials and Gen Xers, now in their peak earning years. In addition to the proliferation of online ads touting internet gambling, crypto TV commercials have made their debut. The not-so-subliminal message: fast and easy money. As has become the established trend in TV advertising, the promotion is directed at meeting consumers’ underlying emotional needs rather than extolling the virtues of the product or service itself. Moreover, flaunting the shtick “Trust me, I’m famous,” a number of entertainment industry celebrity endorsements were the standard.

Co-creator of the sit-com “Seinfeld,” the self-deprecating Larry David, shilling for FTX (crypto exchange), appeared as a clueless time traveler who turns up his nose at great innovations (The wheel? Eh. The lightbulb? “Can I be honest? … It stinks.”) before pooh-poohing a pitch for FTX. The tagline: “Don’t be like Larry. Don’t miss out on the next big thing.” Later, in another ad, LeBron James, pitchman for, schooled his younger self about taking chances. Leading up to the Super Bowl, Matt Damon appeared in a controversial ad comparing electronic currency investment to nautical exploration and space travel, with the slogan “Fortune favors the brave.” As journalist Adam H. Johnson tweeted, the “saddest thing about Matt Damon’s macho-baiting crypto pitch where the viewer must ACT NOW or he’s a weak (expletive) is that this is a top three classic pitch all financial schemes have used to goad men into forking over their paltry savings. … Nothing has changed in 150 years.”

The Nature of Money

Let’s step back for a minute and ask a simple question. Why does crypto exist? Ostensibly, digital money decentralizes and democratizes finance, allowing a peer-to-peer payment network independent of any government or monetary authority. As we’ve written extensively, there is plenty of fault to be had with Fed’s reactive monetary policy framework dating back to Alan Greenspan. It’s likely crypto’s ascent is in part a reaction to perceived corrupted, or at least mismanaged, governmental and financial institutions.

Bitcoin is the most popular and valuable cryptocurrency—and at $750 billion represents 40% of the total crypto currencies’ market cap. Overlaying an aura of mystery and intrigue, it is believed that an anonymous person named Satoshi Nakamoto invented it and introduced it to the world via a white paper in 2008. Bitcoin, however, is not the whole story. There are thousands of cryptocurrencies in the market today, all scheming to topple the current reigning king lest they perish with all the rest.

But is Bitcoin really money? Money serves three functions in an economy: medium of exchange, store of value, and unit of account (a common measure for assigning value to goods and services). Detractors argue that price volatility damages Bitcoin’s store-of-value credibility and is a major hurdle to its acceptance as a currency.

While Bitcoin was originally developed to function as a currency, its popularity is driven by those who buy it for speculation. Currencies’ prices modulate within a relatively limited band based on the relative economic health of their issuing nations and the prevailing interest rates there. Bitcoin, on the other hand, represents no functioning economy. It is difficult to value because it’s not a value-producing asset comparable to common stocks, which represent ownership of real capital and often provide a stream of dividend income.

The current crypto popularity is really a craze predicated on the same FOMO (fear of missing out) that has permeated other asset markets. Crypto is rife with stories of fast and easy money.  Tales of skyrocketing fortunes chronicle the journeys of crypto entrepreneur billionaires and average Joes alike. Changpeng Zhao, commonly known as “CZ,” is a 44-year-old Chinese-Canadian entrepreneur. Forbes has ranked CZ at 20th among the world’s billionaires, estimating his net worth at $65 billion. CZ founded Binance, the world’s largest cryptocurrency exchange by trading volume as of 2017, just five years ago. More pedestrian are the YouTube celebrities generating impressive incomes from crypto trading, promising you can do the same, as if an “asset” detached from any real economy is not merely a zero-sum game.

As goes Bitcoin …

Figure 1

In Figure 1, the Bitcoin chart mimics a common pattern. After a long span of comparative dormancy, in late 2020 the curve began to ascend exponentially as crypto caught speculators’ fancy. It peaked in April 2021, declining over 50%, before rallying with the rest of technology through November of that year. Despite developments that might suggest Bitcoin would resume its uptrend, such as inflating consumer prices—against which it should, in theory, act as a hedge—it has stagnated. As a currency with no intrinsic value, the bloom (for the time being at least) appears to be off the Bitcoin rose.

Furthermore, if Bitcoin followed the standard ascending popularity script, it’s likely that the vast majority of speculators who acquired the cryptocurrency since 2021 show no gains or worse. Falling trading volume confirms this suspicion.

What, you may wonder, is the basis for Peter Thiel to argue quite the opposite, that Bitcoin should not be trading at $40,000, but rather $400,000 or even $4 million, an amount equal to the total market capitalization of all U.S. equities? It’s fortunate for Thiel that Bitcoin does not fall under the SEC’s purview and its onerous restrictions on potentially misleading advertising, particularly regarding future performance. Is it not absurd to even entertain the idea that Warren Buffett and a handful of others can throttle the swelling tide of crypto fans? It seems more likely that Thiel is a presumed participant in a process that has a number of characteristics present in glorified Ponzi schemes. That’s not an accusation, merely an observation.

To be sure, if crypto is a Ponzi scheme, it is atypical. There’s no single Bernie Madoff-like protagonist or culprit. Crypto doesn’t explicitly offer a higher and consistent rate of return, although that implication is manifest in every unregulated, hyperbolic commercial. Given past spectacular price appreciation, risk is regularly relegated to an afterthought. As for secrecy and mystery, they are part of crypto’s DNA. Punitive disincentives to promote ethical behavior are nonexistent: To our knowledge, nobody in the crypto value chain is registered with the SEC or any other oversight entity. “Diamond hands” is a slang term that refers to holding a volatile investment even when there’s pressure to sell. Thus, both reinvestment and delayed withdrawal are assured. The crypto industry is spending hundreds of millions of dollars on celebrity advertising to recruit new investors to sustain its scheme. In fact, history teaches that when cash from new speculators is insufficient to offset withdrawals of earlier investors, the scheme collapses like the proverbial house of cards.

Were Bitcoin a truly liquid asset (remember that very little of the float actually trades), Mr. Thiel would have a difficult task keeping the price afloat. In the meantime, it looks like a chance to pump it now—and be first in line to dump later.

Perhaps on an even more rudimentary level, when in doubt, it’s helpful to apply the “duck test.” If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck. The test suggests that a person can more or less identify an oblique phenomenon by observing the behaviors of its principal proponents. See Ponzi scheme above. Stripped bare, isn’t assessing the future of crypto assets really more about critical reasoning than comprehending the technology?

While the final chapter in the crypto saga is yet to be written, given the expectations of fast and easy money and its reliance on a steady stream of ever bigger speculators/fools, from this vantage point it appears that there isn’t much substance on which to hang your hat.

[1] Generic term: includes all the technology and other variables under the ubiquitous crypto moniker. Bitcoin is used when specific reference to the currency is made.

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