What Hath Crypto Wrought?

By Casey Snyder and Tom Sedoric

On one spring day in 1844, Samuel Morse sent the first telegraph message to a train depot in Baltimore via the alphabet code he had invented. The same return message to Washington, D.C. – the biblical phrase “What hath God wrought? – was witnessed by Morse and a delegation of dignitaries and Congressmen. At that moment the timely sharing of information was transformed forever. We went from the Pony Express to the internet in only a few decades.

Similar evolution is happening in finance today and we don’t know yet if crypto currencies will have a minor or major impact on national or global economies in the decades to come. What we do know is that the cultural buzz and popularity of digital currencies has never been higher since the top currency Bitcoin was introduced in 2009.

In fact, crypto mania is hard to miss. According to a Pew Research survey, while an estimated 16 percent of Americans own some form of digital currency, 90 percent have heard the buzz including some of our curious clients. Banks small and large offer cryptocurrency services for their customers. Major sports arenas in Miami (FTX) and Los Angeles (crypto.com) are now named after digital currency platforms. Celebrities such as Tom Brady and Matt Damon are featured in glitzy ads promoting their favorite crypto platforms with the theme of ‘the future has arrived’.

In 2020, pro football player Russell Okung requested that half of his $13 million annual salary be converted into Bitcoin and is believed to be the first pro athlete ever to be compensated in cryptocurrency. Incoming New York City Mayor Eric Adams said in November that he would take his first three paychecks in Bitcoin. Unimaginable a decade ago, there is now a Bitcoin ATM a short walk away from NYC City Hall and the country of El Salvador recently accepted Bitcoin as a legal tender. 

It would take a few dozen PhD level dissertations to explain all the data points about how crypto currencies – of which there were an estimated 4,000 globally at the beginning of 2021 – are made. Suffice it to say they are essentially created from software algorithms that is then ‘mined’ by ambitious and energy sucking computer code savants using ‘blockchain’ technology. These computers store tremendous amounts of data to create verified currency that can be held or sold. What is clear is that the rise of crypto currency reflects a cultural shift that embraces:

• A new way to diversify one’s holdings - especially among younger, tech-aware and tech-trusting investors and a statement about the future.
• An anti-establishment ethos: a decentralized move away from banks (especially central banks) and governments.
• High risk and potentially high rewards for speculators who understand the ins and outs of a chaotic industry. 

Let us be clear, crypto is not an investment and not everyone is caught up in the thrill. JP Morgan Chase Chairman and CEO Jamie Dimon said the industry was offering “fool’s gold.” The context was simple: the price moves on a day-to-day basis that make cryptocurrencies such as Bitcoin the most speculative high-risk “investment” on the planet. For example, in 2021 Bitcoin rose from $28,991 per one Bitcoin on January 1 to $67,549 on November 9 to $46,709 on December 15 (Yahoo Finance). While pricing is transparent, it’s not the same as researching a company or fund history. There is no business model for pure speculation and values rise and crash with regularity and with little rhyme or reason.

It might also be ecologically unsound. In a September New York Times story, researchers determined that the “(computing) process of creating Bitcoin to spend or trade consumes around 91 terawatt-hour of electricity annually. That’s more than the total amount of electricity used by Finland, a nation of 5.5 million.” 

In addition to a less-than-stellar reputation for providing anonymity for criminal transactions, crypto has also proven ripe for fraud. In November, the U.S. Justice Department announced it would sell off more than $56 million in cryptocurrency to help reimburse investors who lost $2 billion in a Ponzi scheme disguised as the crypto lending platform BitConnect. It was the largest and most costly scam so far but only one of many, due to its anonymity, that have taken place globally.

There are tentative steps being made to make crypto currencies malleable to buy goods and services and likely federal regulations are coming. It remains to be seen whether the most popular currencies turn out to be an alternative asset such as gold or a 21st Century version of the speculative Tulip Mania asset bubble that gripped merchants in 17th Century Holland. 

More than any current prospect in an era where a lot of money searches for a profitable home in uncertain times, crypto requires serious due diligence (be prepared to learn a new dictionary of terms), planning and a stomach for high risk. 

Caveat emptor.

The views expressed herein are those of the author and do not necessarily reflect the views of Steward Partners or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.

Buying, selling, and transacting in Crypto Currency, blockchain-based investments or other digital assets, and related funds and products, is highly speculative and may result in a loss of the entire investment.. Investors must have the financial ability and willingness to bear the risks of a potential total loss of their investment. The prominent underlying risk of using cryptocurrencies as a medium of exchange is that it is not authorized or regulated by any central bank. Cryptocurrencies are not registered with the SEC, and the marketplace is currently unregulated. Securities that have been classified as Bitcoin-related cannot be purchased or deposited in Raymond James and Steward Partners Investment Solutions client accounts. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Securities and investment advisory services offered through Steward Partners Investment Solutions, LLC, registered broker/dealer, member FINRA/SIPC, and SEC registered investment adviser. Investment Advisory Services may also be offered through Steward Partners Investment Advisory, LLC, an SEC registered investment adviser. Steward Partners Investment Solutions, LLC, Steward Partners Investment Advisory, LLC, and Steward Partners Global Advisory, LLC are affiliates and separately operated.

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