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A new day for cryptocurrencies? – Monterey Herald
I just finished reading Michael Lewis’ latest book, Going Infinite: The Rise & Fall of a New Tycoon. It tells the story of cryptocurrency wunderkind Sam Bankman-Fried-SBF to his friends and his fall from grace. The story is fascinating and frustrating, like watching the final seconds of Super Bowl LVIII on repeat if you’re a San Francisco fan. If you are interested in Bitcoin and cryptocurrencies, I highly recommend the book. But be prepared. Nothing in the book will give you any impression of the cryptocurrency market.
The stunning collapse of SBF’s crypto empire in November 2022, and his subsequent convictions for fraud, conspiracy and money laundering in November 2023, were not an isolated event. According to the FBI, losses from cryptocurrency-related fraud in 2023 amounted to $3.9 billion, up 53% from 2022. Additionally, the SEC initiated 46 enforcement actions against cryptocurrency market participants cryptocurrencies in 2023. Fraud is endemic in the world of cryptocurrencies.
Even investors in so-called “safe” cryptocurrencies have suffered devastating losses. The collapse of TerraUSD is one of the best-known examples. TerraUSD was a type of cryptocurrency known as a stablecoin, meaning its value was pegged to one dollar. Luna, a sister currency, was supposed to support the stability of TerraUSD by providing a release valve in times of volatility. Unfortunately, that wasn’t the case. On May 7, 2022, TerraUSD came under selling pressure and its value fell from $1.00 to $0.98. Frightened by the decline, investors fled for the exits. A week later, the price of TerraUSD had collapsed to $0.10, and Luna had plummeted from $116 to a mere fraction of a cent. Investors are estimated to have lost $40 billion.
In my nearly 40 years of investing, I know of no other market as rife with corruption, controversy, and mass collapses as the global cryptocurrency market. Enormous fortunes have been made, lost and stolen. However, hardcore “crypto bros” (yes, they are predominantly male) continue to believe this hype.
In January this year, the US Securities and Exchange Commission approved Bitcoin exchange-traded funds. You can now buy Bitcoin in a regular brokerage account using one of the many ETFs available. The most traded Bitcoin ETF is the iShares Bitcoin Trust (ticker: IBIT), with a 30-day average daily trading volume of 31.3 million shares. At the price of IBIT as of this writing, this equates to dollar volume in excess of $1.1 billion per day. The combined daily volume of the 7 major Bitcoin ETFs exceeded $1.7 billion.
Some Bitcoin fans think the launch of Bitcoin ETFs signals better days for cryptocurrencies, as a vote in favor of its institutional acceptance. The irony here is especially heightened, since Bitcoin was originally a reaction against traditional financial institutions and inadequate regulation that led to the 2008 financial crisis. But the SEC’s acceptance of Bitcoin ETFs isn’t so much an embrace as loving as an act of opportunity. Bitcoin is here to stay and regulators will have to deal with it. However, even after approving ETFs, SEC Chairman Gary Gensler said: “Bitcoin is primarily a speculative and volatile asset, which is also used for illicit activities, including ransomware, money laundering, sanctions evasion, and debt financing. terrorism”. He wasn’t wrong.
Cryptocurrency ETFs may be new, but the problems surrounding cryptocurrencies are as old as humanity itself: corruption, fraud, self-dealing, and greed. Luckily, three simple principles will keep you out of trouble:
1. Never invest in what you don’t understand.
2. Limit your bets to limit your losses.
3. Ignore the hype and think for yourself.
Steven C. Merrell is an investment advisor and partner at Monterey Private Wealth, Inc., in Monterey. Send questions regarding investments, taxes, retirement or estate planning to Steve Merrell, 2340 Garden Road Suite 202, Monterey 93940 or steve@montereypw.com.