From regular correspondent Brad Johnson, in North Dakota:
“If in your travels you come across a truly useful explanation of crypto currency and all its mysteries, please share it with all of us incredible idiots. I am missing everything about it.”
Thanks, Brad – and we’re not idiots if we don’t get crypto. I’ve been working for over a year to build an AgSplainer on the crypto basics with little headway even after books and podcasts and articles. The recent crypto collapse proved that to be largely a waste of time. While cryptocurrencies are based on the reasonable innovation of blockchain, that arguably useful aspect has been overwhelmed by beanie-baby-like speculation.
So, here is my problematic guide to crypto. First, always remember money is stuff we believe is money. It follows the Tinkerbell Rule: if you don’t believe in it, it dies.
Crypto, as the FTX fiasco demonstrated, was unregulated. In fact, FTX was revealed as little more than a Ponzi scheme. Regulation encumbers but legitimizes business discouraging both panic and booms, while lack of regulation endangers investors by inviting fraud. If you can’t explain it, don’t invest in it, no matter how attractive the reward.
If you had invested the same amount in Bitcoin and a S&P Index fund in 2017, the result to date would be about the same. Looking at the difference in volatility, however, suggests crypto is more attractive for gamblers than investors, although that can be a murky distinction. That said, the chance of the entire stock market going to zero is significantly less than Bitcoin doing the same. Crypto has probably affected the farmland boom – not among nonfarm investors, who have never driven that market – but among farmers as it reinforced for them the unparalleled safety of land as a form of wealth. Crypto solved a non-existent problem and created a real one.
Our traditional finance system works OK. You can tell by how little we worry about safety or liquidity of our money. Crypto also has a dirty little secret: it uses the same amount of electricity to create or mine Bitcoins as the entire nation of Argentina. People should be free to invest in crypto, but non-investors should be held harmless from their activity.
Finally, I believe the crypto sector is best characterized by the noted moral philosopher, WC Fields: It is morally wrong to allow a sucker to keep his money.
