Ancient investment wisdom dies hard in the world of crypto. There is little room for the sage words of people like Warren Buffett, who made over US$100 billion by following his own simple advice.
“Never invest in a business you don’t understand,” Buffett warns. As an asset class, crypto certainly falls into that bucket for me. I can’t tell you how many times I’m asked for my views on cryptocurrency. Whenever someone finds out I’m a financial reporter, their next question is ‘Do you cover crypto?’
I don’t understand crypto and don’t pretend to. It makes about as much sense to me as the metaverse, TikTok and NFTs. Thankfully, I’m not alone.
Earlier this year, JP Morgan Chase CEO Jamie Dimon described cryptocurrencies like Bitcoin as “decentralised Ponzi schemes” before the US Congress.
Dennis Kellaher, one of the most influential financial services lobbyists in America, recently penned his views on crypto and the collapse of FTX.
“The fiction of crypto was visible for all those who want to see,” he wrote on 13 November.
“No one should be shocked by FTX’s demise. The fiction (if not fraud) of crypto and its collapse were not hard to see as long as you weren’t on the payroll of FTX/crypto (directly or indirectly) and didn’t let FOMO and greed cloud your judgment.”
Mr Kellaher goes on to write that the many crypto investors, enablers and legitimisers weren’t seduced by FTX, as they now claim.
“They were just willing to accept whatever a billionaire with a ‘vision’ said without doing the most basic due diligence or asking the most obvious questions if they thought it would make them rich,” he said.
“FTX spent enormous amounts of money to make sure many people (including smart and influential people who should have known better) had gigantic financial incentives to not understand, see or question the fiction and fraud that is crypto.”
Everyone likes to think they have found the shortcut to wealth. Stories of Bitcoin investors becoming billionaires within a few years capture the imagination of hungry investors everywhere. But do crypto investors actually understand what they are investing in?
Unlike Warren Buffett, who believes in only investing in things he understands, a new generation of investors appears more than willing to invest in things they can’t comprehend.
This movement away from the traditional and towards the high-risk fringes of reality plays perfectly into the hands of fraudsters. Throw in a bit of greed and FOMO, and you have a recipe for serious losses.
In Australia, crypto is now the second most popular investment product behind Aussie equities. In November 2021, ASIC surveyed over 1,000 Australian investors and found 44 per cent of them held crypto-assets (73 per cent held Australian shares).
Worryingly, the vast majority (80 per cent) of Australian crypto investors didn’t view it as a risky investment.
While the ASIC survey didn’t provide any information about whether these investors actually understood crypto, it did give a few clues about where they are getting their information.
Google was cited as the main information source by 34 per cent of respondents, while a combined 41 per cent utilised social media and networking platforms including YouTube (20 per cent), Facebook (11 per cent), podcasts (10 per cent) and finfluencers (10 per cent).
