The problem being discussed is not the difficulty of asset diversification. Lest you forget:
> People who are unable to discern scam from not scam get scammed.
This is a common refrain, along with Do Your Own Research (DYOR). As if scams are that obvious.
However, my additional point was that I have successful crypto friends, that actively and knowingly invest in shitcoins and justify it as “money they can afford to lose”.
Also, just to be clear - are cryptocoins an investment, a store of value, a currency, or equity-equivalent in a company? Because the goal always seems to be buying enough of every coin to maximise speculative windfalls. That is /strictly/ not the goal of a traditional index fund.
The volatility, in one direction, is a bread and butter argument for the crypto skeptic. Most people investing in crypto know the risks, that’s exactly what draws them in, because it comes with huge potential upsides. No one is better at pointing out scams and schemes than other people in crypto.
What the skeptics fail to realize is that they often occupy just as much, if not more of a ‘team mindset’ than those engaging in the space. Their skepticism becomes more like the failed D.A.R.E. program to reduce adolescent drug use by exaggerating the virtues of abstinence and the worst case scenarios. And ironically, they can’t even articulate the worst parts, because they never engaged enough to have a deep understanding.
If you really want to find the deep dark secrets of crypto, no group will do it better than devout followers or developers of competing projects. I have read far more useful takedowns and warnings from people heavily engaged with and passionate about crypto currencies than the cynics are even capable of.
I actually agree with you. I think it is fair to say crypto is hard to get right — on the one hand there are lots of scams, on the other hand there is a large amount of investment in non-scams.
I occasionally get asked by relatives and friends of what to invest in. Now I'm no expert but I guess in the valley of the blind the one-eyed man is king.
Thing is what I tell them seems to bore them because, well, it's boring. My advice is basically this:
Put your money in a broad index fund and don't look at it for 10 years.
In giving this advice you start to realize it's not what people want to hear. It's not that they want to get rich quick. They just want to make a lot of money really fast. It's completely different.
Crypto-skeptics such as myself could clearly see that the vast majority of Crypto Andys were motivated by nothing more than greed. There's no fundamental belief in blockchain technology. There's no correcting the (alleged) fundamental flaws in the traditional financial system. In fact, there's an awful lot of ignorance of why the financial system is the way it is and little motivation to learn (IME). It's just greed.
So when I see these people get wiped out, I feel bad because that must suck and it's probably not the right time to say "I told you so" (or even "I informed you thusly") but I hope at some point people take ownership for their foolish decisions and do better next time.
Gonna go ahead and quote the bit that people clearly have not read before commenting.
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So “don’t invest more than you can afford to lose” is tough advice to swallow for the large group of people who are seeing the gleaming promises around crypto, but who also don’t have money they can afford to lose. They can take a big chance in hopes of the bright future they’ve been promised by an industry with a huge marketing budget, or they can risk missing out and staying in an already untenable situation.
It’s apparently easy for people to castigate those who’ve just lost everything by repeating this refrain, in the same way it seems to be easy for people to only start pointing out the “obvious Ponzi” or “clear scam” projects only after everything crumbles.
"
But...they shouldn't have invested more than they could afford to lose. This article gives no reasons why the author's thesis should be true, besides people being desperate.
> So “don’t invest more than you can afford to lose” is tough advice to swallow for the large group of people who are seeing the gleaming promises around crypto, but who also don’t _have_ money they can afford to lose.
So if they don't have money, then they shouldn't invest it in speculative investments like crypto.
> It’s apparently easy for people to castigate those who’ve just lost everything by repeating this refrain, in the same way it seems to be easy for people to only start pointing out the “obvious Ponzi” or “clear scam” projects only after everything crumbles.
No, people have been saying since the beginning that crypto is a scam, not after these scams happen. And even if it were after scams happening, there have been so many [0] that surely people would understand that future scams are likely.
Honestly, I have no sympathy for these people. If they want to be greedy and commit millions of dollars into these scams ([1] which the author hyperlinks to) then that's on them. Play stupid games, win stupid prizes, isn't that how the saying goes?
I feel the need to point out the silliness of pushing one's preferred crypto in response to a comment about how crypto is full of fraud and is a risk to the entire economy.
No, it's not a good idea to invest part of your emergency fund into a highly speculative asset like cryptocurrency. Money put into crypto should come from a fund much less essential to one's livelihood.
> appeal to those that have a vague idea of what their money is most-physically represented by?
It attracts people who want to make money easily. A crazy amount of people who have no idea about the tech aspect of crypto are "investing" and active in crypto social groups. Just go on the major subreddits and read a few threads, it won't take long to see that a very large portion of them are kids/teenagers who invested a few hundreds or less in the hope of a 1000x pump, these are the people who get scammed.
Everyone says they're here for "the project", "the future of currencies", &c. most of them are here to make a quick buck
It's not hard to understand the high risk, high reward investment principle. There are plenty of safe index funds, blue chip stocks, and bonds available to retail investors/unsophisticated individuals. It's not difficult to understand that cryptocurrencies are highly speculative. I would never advise my parents to buy bitcoin, ethereum, or any other cryptocurrency without adding the caveat that they be prepared to lose everything in an exchange hack or some other shady behavior.
I can understand the need for the SEC to protect investors when it comes to investment into traditional companies - regular people can't read a 10k and don't sit in on analyst calls that are mandated for public companies registered with the SEC. But if you're investing in an unregulated, highly risky asset, where you don't understand any of the assets or technology the company owns...come on man.
This seems to be one of the better responses to my comment. Thanks. Some thoughts in reply:
1) People should be more hesitant to speak in absolutes. Unfortunately it’s possible that having a nuanced take is inversely correlated with the tendency to post noisy comments online. Maybe, regardless of the underlying stance of “most” skeptics, some more honest dialogue is warranted. Point conceded.
2. Hm. If that’s the case, the author’s assertion that most people who have been scammed are the kinds of people who fall for scams is fair, but not going to change many minds.
3. This is discussed ad nauseam below, so I’ll just add a reminder that we’re debating the author’s statement that “big crypto projects are very rarely scams” as evidenced by his google search. He goes on to say that “Crypto is a few hundred interesting projects, plus a long tail of thousands of scams.” So, most crypto projects are safe if you just ignore most crypto projects and only consider the most dominant. Realized losses vs unrealized market cap aside, the dynamics that incentivize that long tail of scams are worth worrying about in my view.
Just because you don’t understand how the traditional market works it doesn’t mean it’s a scam. Sure, there are scams, and sometimes they are big and problematic, but there is also a global network of honest people working, producing, creating, and selling real, useful things, and all that is connected by the global market. It is not perfect, but human beings aren’t, so it will always be flawed, but the good things far outweigh the bad ones.
Investing in crypto is not a scam by nature, in theory; it is a scam in practice. It is just how people use it, because there simply is no other use. The only reason someone buys crypto is to wait for it to grow, for whatever reason, so they can get rich easy. There is no other reason (right now) to expect crypto coins to grow in value other than speculation and hope. And scammers feed on that hope, that’s just how it is. They are not that different, by nature, from the traditional market, but right the bad parts are exacerbated and there are no good ones to counterweight. Once cryptocurrencies are connected with enough real products, services, etc they will have a better reason to exist, and to become a better investment. After all a currency is just a way to trade things, it is not a value in itself.
Finally, someone that speaks directly and honestly about it. I 100% agree with you, there's a problem. Unfortunately, this problem means that a lot of naive investors will jump on the crypto bandwagon only to get hurt.
It’s not the baseline in cryptocurrency, and my point is both the ICOing companies and investors are in on the game so nobody is fooling one another. I don’t have the stomach to spew BS for money so I’m not involved in the ecosystem. But I think you need to be a bit more realistic and not view investors as just a class of people that are being ripped off - most, especially bigger/institutional are savvy with their money.
There comes a point where you have to ascribe some level of responsibility to the investor. Cryptocurrency is massively ridiculed for scams like this, to the extent that it's hard to feign ignorance of it. I'm not saying that the scams should be allowed, but telling people to take even the smallest of steps to protect themselves is not victim blaming. People not understanding a 401k or mutual funds isn't a reason for them to not do due diligence.
But that's the thing. A lot of investors in NFT/crypto doesn't see that 1% reward/risk ratio. While I do agree that crypto has an appropriate place in our financial system, the way it's advertised now is just ridiculous. This is evident with the amount pyramid, Ponzi, and pump-and-dump schemes linked to a lot of crypto projects.
I know a handful amount of people who've lost a big fraction of their savings investing in crypto but in the end losing it all to a scam. Where are all these people? Probably hiding in shame. There's just too much survivorship bias in this space and criticism on this should be welcomed not shut down if it's going to be the technology of the future.
You seem to overlook the fact that you are comparing sophisticated financial instruments to 'investments' marketed at moms & pops sometimes as de facto bank accounts with FDIC markings on the marketing materials.
Did I know people who made out well playing the crypto market? One. Did I tell him to not do it? Nope, because he knows what he is doing.
The flipside of this is the 5 or so people in my direct personal sphere and hundreds if not thousands (if you count the lurkers who followed conversations I was having with individuals) online who have advocated for or expressed direct involvement or interesting in playing in crypto markets that I have advised against doing so, with a rare few heeding my warning but the overwhelming majority using circular logic, fallacies, personal attacks, and 'not-even-wrong' economic theories to justify putting a large portion of their income (sometimes even taking out loans) on it.
Please understand that the perspective I am trying to show the readers of my comments is my own.
Cryptocurrency doesn't have a 'bro' problem. Cryptocurrency suffers from the fact that it simultaneously exists in two completely different realities.
On one hand there's the technology side of things with people like Vitalik Buterin, or Charles Hoskinson (among many others) who are legitimately excited by the possibilities that Blockchain offers (and the challenges that have to be solved to get there).
And on the other hand there are those who got lucky by investing early into Bitcoin, have absolutely no clue how the technology works, but convinced themselves that they are some kind of crypto genius trading gurus and are now running around flaunting their wealth and convincing others to invest either into Bitcoin, or worse, into one of many cobbled together ponzi-scheme scam altcoin token.
Those people of course aren't very inclusive, but that's not a crypto problem, that's a con-artist, trading guru, get rich quick scheme problem.
The irony is that every single crypto enthusiast I know, builder or speculator, has invested in shitcoins and scam coins just to hedge their bets in the off-chance it pumps…
They’re fully aware and will tell me it’s shady, and yet, do it anyways.
> People who are unable to discern scam from not scam get scammed.
This is a common refrain, along with Do Your Own Research (DYOR). As if scams are that obvious.
However, my additional point was that I have successful crypto friends, that actively and knowingly invest in shitcoins and justify it as “money they can afford to lose”.
Also, just to be clear - are cryptocoins an investment, a store of value, a currency, or equity-equivalent in a company? Because the goal always seems to be buying enough of every coin to maximise speculative windfalls. That is /strictly/ not the goal of a traditional index fund.
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