Is Crypto Foolish? A YTD Gain of 70% Says No

Andy Snyder|April 26, 2023

Here’s a theory for you.

It comes from a reader…

And it’s a good one.

This seems like a foolish issue since all crypto is is bytes flying around the internet, with nothing to back them [except] more bytes… nothing tangible, nothing for real – just bytes flying around the internet.

If advising folks on investments, this should be the first caveat.

Fair enough. He’s right. Well, sort of. At least kind of… maybe a little right.

Yes, Bitcoin is not tangible. It’s worth what folks will pay for it. It’s just like the dollar – backed only by its demand.

In that way, though, it’s also like gold. To an alien (and even many earthborn beings), gold is just a rock… a rock that’s valuable because folks long ago thought it looked cool.

Heck, we could even say the same thing about land. Its price soars and plummets. But we don’t really own it. We can’t pick it up and take it with us. With one stroke of the pen or one cock of the gun, the government can take it away… or give it away. Its value hinges solely on the strength of our laws.

So the argument that crypto is nothing but “bytes flying around the internet” is a bit, as we are wont to say, unencumbered by serious thought.

It’s indicative of a fella who hasn’t read past the headlines… or thought seriously about money or investing since 1973.

Importantly, there are a few other ideas at play here. Many cryptos do have tangible value. Some are needed to access a platform or a blockchain. Others give their holders the right to vote on certain business functions. And some even represent the earnings of a real-life business.

But the folks who already know all this need no reminder. They’ve done their homework and read more than the headlines.

And the folks who don’t know it… don’t seem to want to know it. A closed mind is much easier to defend from the truth.

But there’s more to the story.

True Value

What if crypto were nothing but bits and bytes? What if it were a purely speculative asset simply looking for the “greater fool”?

Are the dollars earned by speculating any less valuable than the dollars earned by digging a trench?

We’ve done both. And we sure know which treats our back better.

We suppose this is the reader’s real question.

Some say speculating on crypto is akin to gambling. They’re wrong.

In Vegas, the house has the advantage. There are no such stacked odds with crypto. In that realm, prices go up and prices go down based on money flow.

When money is flowing in, prices go up.

When it flows out, prices go down.

Understand that and, really, you know all you need to know about the space.

It’s a speculative asset class that tightly hinges on the price of money and the speculative fervor that cheap money creates. When interest rates are low or the government is printing trillions of dollars, we’d expect nothing less than a surge in crypto prices.

When rates are rising, safe yields are easy to find and the money supply is waning… we’d expect crypto bulls to be hard to find.

Understand that simple idea and you won’t just see the value in putting a small slice of your cash in a speculative asset like crypto… you’ll also understand how the modern market works.

All it takes is a bit of independent thought… an exercise that seems to be lacking these days.