“In my life, I try and avoid things that are stupid and evil and make me look bad in comparison to somebody else – and bitcoin does all three. In the first place, it’s stupid because it’s still likely to go to zero. It’s evil because it undermines the Federal Reserve System ... and third, it makes us look foolish compared to the Communist leader in China. He was smart enough to ban bitcoin in China.”

 ...Charles Munger, Berkshire Hathaway

Bitcoin is up over 6000% since 2015.  These gains are based on nothing but hype. There are no assets backing it and it does not generate cashflow.  As of June 14^th, the value of Bitcoin has lost 41% over the past year.  When the market started correcting last month, it was estimated billions (some say the total is close to $1t U.S.) of dollars were wiped out within hours. This correction continues and has resulted in a handful of dealers refusing to trade the coin because they do not have the funds to pay those who want to cash-out.  This means the buyers have disappeared and indicates a larger correction is on its way.  Unfortunately, we will never really know the true extent of the problem because there is no central exchange.

Most people refer to cryptos as currencies.  They are far from one.  Currencies accommodate trade and cryptos do the opposite. El Salvador is the only country to accept Bitcoin as a currency. All those locals who bought on this news lost 60% over the following few weeks, which means the holder’s purchasing power collapsed.  

What differentiates a currency from a crypto?  Currencies are backed by a government and usually trade within a tiny range against the major currencies on any given day. This low trading range allows for payment terms over years.  Without this low spread there would be little commerce because business could not price their goods or services in the future. For example, a developer will often make contracts with firms for their services a few months out, sometimes even years. Now assume that the two companies agreed one year ago to a price of a job beginning today for 1 Bitcoin. The party offering the goods or services would have taken a triple digit hit to their revenue under this contract.  This forward planning requires a stable mean of exchange which cryptos do not offer.  

Cryptos trade 24 hours a day around the world and are volatile. On May 20^th I checked the price of Bitcoin at 6:30 a.m. and it was up $1,000.  By 10:30 a.m. it had dropped $4,000 and ended the day down $800.   This is gambling, not investing.  At least with a regulated stock exchange they can stop trading when the market falls by 5% during the day.  Crypto tokens are given a free reign for the promoters to do as they want.  In other words, there is zero protection for investors.

There are roughly 50 real currencies backed by governments around the world. A year ago, it was believed there were around 11,000 different crypto currencies backed by hype. If this is near accurate, then there are more crypto currencies floating around the world than companies listed on all stock exchanges.  This is most likely true because any person can make their own and set up a trading platform.

Cryptos are pushed by a promoter.  Some of them claim their crypto currency is backed by the U.S. dollar.  How is this even possible? It is a misleading statement because what they mean to say is that their coin is priced in the currency.   A while back the American SEC demanded proof of the amount of currency a coin operator bragged about backing his brand of crypto. He could not produce one dollar.  Hopefully this crook will be charged with fraud.  At least listed companies have some form of assets which are verified by accountants and reported to the various security commissions. 

Most crypto enthusiasts believe cryptos are free from government scrutiny.  This is also not true. Revenue services across the world can legally demand any person or business to provide their crypto trading history. Plus, governments have top programmers that can hack into a crypto network to do their own homework. It is mostly scammers that want to be paid with Bitcoin. If they demand cash, governments will force the banks involved to report the transaction.   If they are paid in Bitcoin, they are transferred many times around the world making it harder (not impossible) to trace.   

All crypto is essentially worthless. It also does nothing for the economy.  If anything, it hinders it by diverting cash from the banking system and by wiping out people’s savings.  Singapore, China, and a handful of other countries have made all crypto illegal, as they should be. They are a pyramid scheme. Stay away from this market. If you are active in it, cash out. The decline has started and has much further to fall.