By ARTHUR VIDRO
By Arthur Vidro
Is cryptocurrency a mania that will pass? We don’t yet know.
Cryptocurrency is a fancy term for a money substitute that is exclusively digital. The most famous example is Bitcoin.
Cryptocurrency is now allowed – in small quantities only – in certain 401(k) plans. Heck, a grocery store in New York City has a Bitcoin automatic teller machine. You insert cash into the machine, which (after deducting a hefty fee) adds to your “digital wallet” the proportionate amount of Bitcoin.
Full disclosure: I’ve had the same wallet for the past thirty years, and it ain’t digital. I wouldn’t know a Bitcoin if one hit me in the head. But it can’t hit anyone. It has no physical being. It is merely digital code. Transactions are conducted and verified via a digital ledger that is often referred to as a “blockchain.”
Cryptocurrency is not backed by any government. If an exchange that houses your cryptocurrency disappears, you are left with nothing. There is no federal program insuring such accounts.
The price fluctuates greatly. For instance, in the second quarter of 2021, the Bitcoin dropped 41% in value. Cryptocurrencies, like stocks, do not all rise or fall in value together. Some can go up while others go down.
Also, as with stocks, it is possible to buy a fraction of a unit; you don’t need to buy an entire $33,000 Bitcoin to invest in it.
The touted advantage of cryptocurrency is that its usage cannot be traced. Which sounds great if, for example, you are a kidnapper or hacker and want to collect a ransom without risking detection.
But do the rest of us need such currency? Well, sure, say many. After all, one has to partake in whatever is newest, right?
Plus, a few retailers have begun accepting payment in cryptocurreny.
Bitcoin’s value depends entirely on what investors will pay for it.
Reminds me of the dot-com craze. People with no financial knowledge (and even people with such knowledge) threw their money at internet stocks solely because they were internet stocks. It no longer mattered if a company paid dividends or was earning a profit. Anyone bringing up such questions was brushed aside for not being with the new exciting times.
Any company with a “.com” presence got bought at ever-escalating prices. Folks from millionaires to shoeshine boys were making big bucks from the craze. Until one day in 2000 it was over and the bottom fell out on those stocks and the companies themselves began disappearing. One example: Pets.com, a memorable bust despite great predictions at the time for its future.
A craze is inexplicable, no matter what is being fawned over. I’ve seen many. Dot-com stocks. Cabbage Patch dolls. Back in childhood, some friends bought “pet rocks” in the mid-1970s. Remember them? They were the craze right after mood rings.
Some crazes stick with us and become part of our lives. Other crazes disappear mercifully.
Trouble is, nobody knows ahead of time which fads will resonate.
In 1636-1637 (only slightly before my time), we had tulip mania. People invested and lost their live savings. Yes, when tulips were new to much of the world, they became what everyone wanted. Because so many folks got caught up in the craze, fortunes were made or lost.
If you buy cryptocurrency, yes, you might make a fortune. But you might lose a fortune. It depends on when you buy and on when you sell.
When famous people plug a cryptocurrency, its value goes up. Why? Because famous people have “followers” on the internet. The followers are often folks who prefer not to think for themselves and would rather let the celebrities – be they political, athletic, or corporate – tell them what to think.
Last month at a Euro 2020 press conference, soccer star Cristiano Ronaldo made a splash by moving out of sight two offered bottles of Coca-Cola (a tournament sponsor) while drinking a bottle of water. Ronaldo was simply drinking what he always drinks and putting aside what he never drinks (carbonated beverages).
Yet, as a result, Coca-Cola stock dropped in price by roughly a dollar a share. Doesn’t sound like much, but it adds up to about $4 billion in value. The next day another billion dollars in value was lost.
Similarly, when a celebrity pitches a cryptocurrency, followers reacting rabidly will lead to increased values for those currencies. Which is great for the celebrities who have a stake in those currencies.
Such currencies are not backed by any government. However, El Salvador’s congress in June 2021 made Bitcoin (but not its rivals) legal tender.
Turkey’s central bank, though, since April 2021 has banned the use of cryptocurrencies. India is close to proposing a law banning anyone in the country from trading or holding cryptocurrencies.
If you must buy digital money, then buy from a legitimate seller. Ask a brokerage house. Coinbase is a publicly traded company that specializes in cryptocurrencies. But consider such purchases speculation, not investment. Don’t shell out money on it that you can’t afford to lose.
Me, I can’t afford to lose money. So I’ll sit out the cryptocurrency dance.
Arthur Vidro’s “EQMM Goes to College” appeared in the May/June 2021 issue of Ellery Queen’s Mystery Magazine.
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