The Wall Street Journal published an article on December 26, 2018 by Jean Eaglesham and Dave Michaels with the headline, “Crypto Craze Drew Them In; Fraud, in Many Cases, Emptied Their Pockets”. The article is designed to induce fear and loathing of Bitcoin by incorporating the thought that because people bought into Bitcoin and suffered fraud that anything to do with Bitcoin is likely to induce fraud.
It is without irony that this same fear was proposed in recent memory prior to the rise of technology giants like Amazon and eBay. In 2001, the Chicago Tribute featured an article by Liz Pulliam Weston, P.J. Huffstutter and Jon Healey with the headline, “Tech Workers’ stock options turn into tax nightmares”. Thousands of tech workers went to work for Cisco and other well-known companies. In those days, stock options were a way to pay a worker in something other than cash to incentivize them to work at the company. When those stocks became publicly traded, many workers were unable to exercise their options due to restrictions. After the new year began, the “Dot Com Bubble” hit and now these workers owed millions in taxes on stocks and options that were essentially worthless.
Still, to this day, we do not say that the stock market is fraudulent. If anything, the Trump administration is encouraging investors to buy more American stocks after a recent 20% decline in the market. In another example as to how the WSJ article is misleading, in the 1980’s many investment advisors encouraged saving money with a Savings and Loan bank. At its’ peak, there were more than 4,000 banks with combined assets of $600 billion. Unfortunately, the interest rate spread between lending for homes and paying investors were not set right. This meant that the cost of money to banks were far higher than what it could receive from its’ loan portfolio. This led to a collapse and lengthy congressional hearings and a bailout from the government.
Many advisors today encourage people to place their faith in banks and the US Dollar. If anything, more consumers use banks today than ever before. In a final example, Bernard Lawrence Madoff was (at one point) a well-respected investment advisor. He and his crew managed to swindle billions from investors even with the seeming support of congress and the SEC. Every day, his team would completely fabricate the reports given to their investors and audits conducted by government regulators completely missed these facts. Even as many executives of the Madoff investment fund are now serving long prison sentences, victims of this fraud and others like it find that they are without rights. In fact in 2009, the Supreme Court issued a ruling stating that victims of fraud must extensively prove the fraud before the defendant is required to turn over any information. The actions by Madoff investments with the complicit support of the government could still be in practice today by another firm. We may yet see larger versions of Madoff’s schemes in the future.
Every major media outlet carries advisors encouraging everyone from students to senior citizens to place their faith in a variety of financial instruments. Despite clear and compelling evidence that the U.S. Dollar is vulnerable to a variety of fraudulent schemes, we do not yet say that investors should avoid the U.S. Dollar. In fact, the U.S. dollar has lost 97% of its’ buying power since 1900. Medical care, shelter, energy and food carry some of the largest price increases far exceeding the cost of inflation (usually between 2% and 3%). Even if consumers placed their U.S. Dollars in a bank account at 3% fixed interest, this consumer would not have the same buying power that they would have had in 1900.
Outside of this, many unscrupulous individuals have defrauded the American public and have made off with billions. We only hear about the ones that were arrested. In spite of this, the Wall Street Journal writers of that article would have you believe that the SEC regulated markets carry less risk than emerging technologies. Perhaps this is true now, just as it was true during the early days of the emerging internet. Investors of the SEC regulated Pets.com lost millions of dollars on that investment. But, the SEC simply says that all these investors read the same disclosure that “it may lose value!”.
Creators and developers of Bitcoin, ethereum and many other cryptocurrencies have never said that they are an investment vehicle. Today, these developers of this new technology are seeking to create financial systems with far more capabilities than our current technologies can support. Exchanges, such as Gemini and Coinbase, operate within this space are the ones providing gateways between the legacy fiat systems and the newer cryptocurrency systems. These companies simply provide an interface and have not published any forecasts or forward-looking statements that would indicate a rise or fall in the exchange rate….