Crypto Market Loses $1 trillion in Value: the Crypto Scam Report, #3

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It’s clear to anyone with a background in investing that crypto is a global hysteria where value is driven by crowd emotions, and hyped supply and demand. This makes it an ideal vehicle for crypto scams.

The mass global hysteria has boosted the cryptocurrency market to $US 2.63 trillion, but despite this astronomical amount, no one really can explain what is driving crypto prices, nor is it considered a legitimate investment or even a distinct asset class.

What we do know is that mass hysteria is a human deficiency. It has been around for thousands of years and helped fuel wars, revolutions, riots, market booms and busts, and political instability. Mass hysteria moves faster today due to social media, unethical financial websites and brokerage firms, psychological/social stress, and income inequality. 

Most importantly, mass hysteria, combined with cryptocurrencies, is also the ideal engine for fomenting financial scams, especially among uninformed, greedy investors.

Combined, these forces offer the very remote hope for uneducated investors to make money, while also enabling criminals new ways to move untraceable money internationally. Here are some recent actual real-world examples. 

Here is the latest news on this global scam:

The Bitcoin Bubble is Bursting and What’s Causing it

“Bitcoin, the largest digital asset, lost more than 12% on Jan. 21, 2022, and dropped below $36,000 to its lowest level since July 2021. Since its peak in November 2021, it has lost over 45% of its value. Other digital currencies have suffered just as much, if not more, with Ether and meme coins mired in similar drawdowns,” according to Bloomberg.

“Bitcoin’s decline since that November 2021 high has wiped out more than $600 billion in market value, and over $1 trillion has been lost from the aggregate crypto market.”

So what’s driving the crypto price drop?

Since crypto has no fundamentals, any guess on its price direction is just a guess.  But the rise in inflation and the pending Russian invasion of Ukraine seem like good places to start. If the Russians and other big-money oligarchs who hype and own crypto want an excuse to cash out, they can use the Russian threats of war as a great excuse to start the dump phase of their original pump-and-dump scheme.

More Bad News for Crypto from Russia

“The central bank of Russia, the third-biggest crypto mining nation in the world, proposed a blanket ban on the use and creation of all cryptocurrencies domestically,” according to Bloomberg News.

“Cryptocurrencies bear the hallmarks of a pyramid scheme and undermine the sovereignty of monetary policy, posing a threat to the Russian financial system, the central bank said in a report published Thursday.

“Potential financial stability risks associated with cryptocurrencies are much higher for emerging markets, including in Russia,” the central bank said.

More Countries Have Banned Crypto and Russia is Just the Latest

Other nations will not allow this crypto scam to undermine their own domestic currencies and financial system. According to Fortune, the nations that have banned crypto to date are: Egypt, Iraq, Qatar, Oman, Morocco, Algeria, Tunisia, Bangladesh, and China have all banned cryptocurrency. Forty-two other countries, including Algeria, Bahrain, Bangladesh, and Bolivia, have implicitly banned digital currencies by putting restrictions on the ability for banks to deal with crypto, or prohibiting cryptocurrency exchanges, according to a 2021 summary report by the Law Library of Congress published in November.

The Bitcoin Hype Continues

Just as more nations ban crypto, the crypto PR firms are doing a booming business working to lure in new investors, churn up media coverage. But what these press releases all lack is facts. The messages from these PR firms are strong on unsubstantiated claims and weak on facts.  Here is an example from Alex Lemberg, CEO of the Nimbus Platform.

In a press release he says: “For the first time, valuable assets are available for use by people from any nation and any background. The poorest person has the chance to find their own financial success, and as adoption rates climb ever higher, it is clear that Crypto will become a major factor in the global financial system.”

What is not clear is the definition of a “valuable asset.” Plus, anyone with money worldwide has a domestic stock market to invest in that is regulated to a better degree than crypto. Plus, an investment in a stock or bond has a verifiable asset record of profits and losses, financials that are comparable to other companies in the same industry, and an audited financial statement. None of this is available in crypto.

In this same release, Lemberg’s PR firm says that “Crypto offers a chance to revolutionize the financial industry and bring in more capital than ever before.”  And this brings us to the other major problem with crypto.

What Is Crypto Being Used For?

Central banks and some more energetic regulators openly question the need for crypto.  Central banks in many developed nations are considering a digital version of their own currency, which will deflate the crypto bubble overnight.

But as it now stands, crypto has a few major purposes and goals:

  • To destabilize central banks;
  • To launder money;
  • To evade taxes;
  • To serve as a placeholder for the expanding world of online sports betting;
  • To make short-term profits via scalping from other naive investors.

Of the reasons listed above, crypto has a lot of traction among younger people who also engage in sports betting. A conservative estimate about the size of the legal sports betting world in the U.S. is $165 billion. “That results in a projection of a staggering $44 billion in gambling revenue for 2021, Forbes reported.Nov 11, 2021. Crypto and sports betting are related activities: they are not even close to any definition of investing.

Nicaragua’s Shaky Bitcoin Experiment

As noted on this site before, the first nation to adopt crypto as a national substitute currency was Nicaragua, a politically unstable nation noted for drug sales, transport, and the killing of civilians.

Now, according to a Tweet by economist Nouriel Roubini, that country’s “experiment with Bitcoin is an unmitigated disaster: whoever held BTC lost 50%, the country spread is thru the roof and the sovereign is near bankrupt. They should impeach that buffoon (the president of Nicaragua), a criminal president who is bankrupting the country!”

As background, in June 2021, “the small, poor, conservative country of El Salvador allowed bitcoin to be used nationally alongside the national currency and the US Dollar. This marked the first time any nation has adopted bitcoin as a national legal tender.

The country’s 40-year-old, populist president, Nayib Bukele, made the surprise decision to use crypto nationally without public debate.  The New York Times reports that this decision was not popular. As much as 91% of the population opposed it, but Bukele pushed it through regardless.

Now, it’s evident that Bitcoin’s great experiment in a poor nation has only made that financial system weaker and its citizens poorer. This will be repeated in other nations where crypto is hoarded and manipulated in some of the largest global pump-and-dump schemes in financial history.

Crypto is Not An Asset Class

In an effort to attract more legitimacy in the financial world, crypto advocates have made the unsubstantiated claim that crypto is an asset class.  It is not an asset class, as this article posted on this site has noted.

The reason: Academic finance has objective criteria to empirically evaluate an asset class based on risk, efficiency, and actual returns over time.

The traditional asset classes are stocks, bonds, Treasury bills, precious metals, and real estate.  In addition, academics have included different investment strategies, such as those involving futures, options, private equity, and hedge funds, as vehicles and instruments that offer different and expanded risk management and return characteristics.

Crypto Shows the Failure of 401(k) Financial Education

Finally, the rise of crypto and its appeal to individual investors shows the failure of 401(k) investment education and further affirms that financial literacy among Americans is at a very low point.

Take this example from one young crypto investor who said buying crypto was part of a “paradigm shift of democratized ownership paired with 24/7 trading.” It’s too bad this guy does not know that 24-hour retail trading started in futures markets in the 1980s and that “democratized ownership” (whatever that is) is what issuing the shares of publicly traded companies is all about, and that started in the early days of the 1800s at the NYSE.

Worse, the October 2021 issue of Financial Planning magazine (page 7) found that 14% of households contribute to crypto accounts and only 66% contribute to their 401(k)s and other non-retirement accounts.  This same study found that 69% of companies don’t provide any financial literacy education or access to a financial advisor.

The Bottom Line: Crypto Is Popular Because Americans Are Desperate to Make Money

Fear and greed are the driving emotional engines in investing and it is certainly present in the crypto phenomenon. But there are also solid economic and political reasons.

The biggest is a political philosophy called neoliberalism that is based on the core ideas of:

  • Distrust of elected government;
  • The elevated role of the “free market” rather than regulation, to settle disputes in the marketplace;
  • The privatization of all publicly-owned and managed services such as Medicare, Social Security, and even public utilities, such as electricity and garbage collection, and;
  • Libertarianism believes in the importance of any individual to do what is right for themselves at the expense of the greater good or advance the public interest.

In short, neoliberalism is a system that benefits the haves and not the have nots. It is a great system to justify the wealthiest. It puts in place a judicial and economic system that allows the rich to expand their wealth and preserve it against any bottom-up social, economic, and political change.

These are the same beliefs driving Trumpism. It is right-wing populism that is accompanied by nationalism and in the US, by white supremacy. So, let’s make the link between the rise in crypto, neoliberalism, and Trump’s goal of persistent political instability. Destabilize the Federal Reserve, make crypto tokens a new form of wealth, allow the richest to benefit from the crypto bubble, create a new currency to evade taxes and launder money and we have all the moving parts for the crypto scam and the people who are promoting it.

 

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Chuck Epstein has managed marketing communications and public relations departments for major global financial institutions and participated in the launch of industry-changing financial products. He also has written by-lined articles for over 50 publications, five books and served as editor and publisher of nation’s first newsletter on the topic of using the PC for personal investing and trading. (“Investing Online, 1994-1999). He also is a marketing consultant, writer and speaker on topics related to investor protection and opportunities in the very dynamic cannabis industry. He has held senior-level marketing, PR and communications positions at the New York Futures Exchange, Chicago Mercantile Exchange, Lind-Waldock, Zacks Investment Research, Russell Investments and Principal Financial. He has won national awards from the Mutual Fund Education Alliance (MFEA) and his web site, www.mutualfundreform.com, was named best small blog in 2009 by the Society of American Business Editors and Writers (SABEW).

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