Opinion: If the SEC OKs bitcoin ETFs, it would be encouraging the most obvious speculative bubble in modern times
One of the most misleading statements, if not an outright lie, about cryptocurrencies is that people are investing in them.
Nobody has ever invested in Bitcoin
You speculate. This is a distinction that Gary Gensler, chairman of the Securities and Exchange Commission, should keep in mind when deciding on a pending application for a VanEck proposed Bitcoin exchange-traded fund.
An SEC ruling could be made in June. If the regulator gives VanEck the green light, Bitcoin will be significantly more available for retail.
More specifically, people with self-directed 401 (k) s as well as individual retirement accounts (IRAs) can deposit tax-protected funds into crypto. Six companies have applied to list crypto ETFs, including Fidelity, the largest retail investor brand. It is easy to imagine that the speculative craze could turn into a rush. In this case, the government would encourage – yes, subsidize – the most overt speculative bubble of modern times.
You may be asking, “Shouldn’t people be free to choose their own investments, offers, and investments?”
Yes they should. However, citizenship does not entitle you to tax deferral. Tax deferrals are a matter of public policy.
The government is shifting taxes on pension funds for two good reasons. Society benefits when people accumulate savings because they become less destitute. And it benefits when people invest instead of consuming, because the land accumulates capital in this way.
Bitcoin and other cryptocurrencies do not meet any of these conditions. It is obviously not an investment. If you think that doesn’t matter, try telling your spouse that you are putting the family’s nest egg into lottery tickets.
The money that is spent on lottery tickets is not saved, it is simply used up. Similar to crypto.
Crypto doesn’t deserve Uncle Sam’s blessing.
Benjamin Graham, a Wall Street sage, once defined investing as an operation that, after careful analysis, “promises security of capital and a satisfactory return.” Cryptocurrencies that have fallen 20% in one day in May and 50% in a single lunar cycle do not promise any security.
Since legitimate investments also fluctuate, what characterizes “speculation”? According to the economist John Maynard Keynes, speculations are primarily concerned with investor psychology. Not: ‘How much is something worth?’ but: ‘What do other people think?’ Conversely, a real investor can ignore psychology. He or she rates his or her investment based on his or her own intrinsic value. Its value is generally derived from earned income, not from market noise.
Bitcoin does not produce income; it is all Noise.
VanEck claims on its website an “investment case for Bitcoin”. It suggests that “Bitcoin is increasingly being used as an asset with monetary value”.
The statement is reductive: “It has value because it has value.” In truth, Bitcoin is not used as a currency. Nobody asks about the price of a washing machine in Bitcoin.
People speculate in bitcoin to make money in dollars – what is a currency.
VanEck’s second reason, “Bitcoin introduction continues”, does not advance any investment case. It is in line with Charlie Munger’s statement – “someone else deals shit and you decide” to trade them too.
VanEck also claims that Bitcoin is “digital gold”. But gold
is not an investment either. It does not produce income and there is no rational way to value it.
There is a salient difference between Bitcoin and precious metals, but not in Bitcoin’s favor. Gold has an industrial function and monetary equivalence goes back thousands of years. gold is valuable – but the impossibility of accurately calculating its worth makes it a speculation.
Bitcoin is a speculation with No value other than the value of secrecy, which is primarily of interest to drug lords.
It is not a currency and it is not designed to serve as currency. It’s much slower than the systems used to process Mastercard and Visa (Bitcoin processes 4.6 transactions per second, up from 1,700 for Visa). It is far too volatile to be used as a currency.
The most publicized and practically only provider that accepted Bitcoin was Tesla
who are also known to have “invested” in Bitcoin. After Tesla piqued public interest (and drove the price up), Tesla announced to Wall Street (and its supporters) that it had paid off $ 272 million of its so-called investment.
Tesla’s self-proclaimed CEO Elon Musk next decided that Tesla wouldn’t sell cars for Bitcoin after all. Rebel that he is, Musk is now demanding payment in legal tender.
Bitcoin promoters often rave about the blockchain technology on which the coins are based. Blockchain has spurred tangible gains in logistics, but Bitcoin does not give any rights to the technology. They are not related for investment purposes.
VanEck also claims a rarity. Close? There are over 1,300 cryptocurrencies and no limit on new ones. And scarcity is not enough as an investment case. Rare shit is still shit.
VanEck’s next rationale is that Bitcoin adds “portfolio diversification”. Keynes said it best: one good stock is safer than 10 bad ones. Buying a collection of assets, each of which has no value, cannot add value or security to the whole.
VanEck’s final justification: “Growing demand: More and more investors are buying Bitcoin, including institutional investors.” This is the bigger fool’s theory.
Securities regulators should study VanEck’s statement. If “rising demand” is the justification, what might be the result when demand collapses?
Neither the press nor Wall Street were sufficiently skeptical about crypto. Everyone has fallen for the grim stupidity that since Bitcoin is “volatile” it should only encompass a small portion (and not zero) of investor accounts. But volatility is not the main problem. It is a symptom of the problem underlying worthlessness.
Washington should note that the average retirement account is only $ 65,000. It’s easy to imagine that, if allowed, some savers would sink a large chunk into crypto – and potentially blow their retirement savings.
The SEC’s job is to check whether the proposed ETFs operate in a fair and liquid market. It usually does not evaluate the merits of investments.
In this case it should. Congress has identified certain assets as unsuitable for retirement funds – including collectibles like postage stamps and rare (tangible) coins. One reason for this is that such assets cannot be accurately valued. This is certainly true with crypto. The SEC should seek legal clarification in this regard.
In addition, the SEC could reasonably determine that No Liquidity can be guaranteed as investor demand for an asset with no intrinsic value can never be assured.
Gensler taught crypto at MIT and is supposed to sympathize with the industry. The SEC is also under pressure to act because Canada has approved several crypto ETFs. The industry is exerting gentle pressure by throwing money on former regulators. (Two former SEC chairmen are shillings for the industry.)
Gensler should look to Andrew Bailey, the governor of the Bank of England, who said crypto has “no intrinsic value. Only buy them when you are ready to lose all your money. “
After the 2008 crash, Gensler – nominated as CFTC chairman – told Congress that he would work to make sure there was no further financial failure. Neither he nor anyone can stop crypto from exploding. But he can make it a lot less painful. Crypto doesn’t deserve Uncle Sam’s blessing.
Roger Lowenstein, a former reporter for the Wall Street Journal, is the author of six books on financial and economic history. He writes the Intrinsic value Column on Substack where this was first published – “Memo to SEC: Do not activate Bitcoin bubble enable. “ Follow him on Twitter @RogerLowenstein.