If you’ve been reading our blog for long, you probably could’ve guessed we think investing in cryptocurrency is bad and stupid.
And yeah, I considered using more expansive words like “unethical” and “speculative” instead of “bad and stupid.” Those words had precision, but lacked panache.
Our Patreon donors vote on potential article topics, and this month they wanted to read our thoughts on investing in cryptocurrency. So we get questions about it all the time! Which isn’t surprising. Relative to cash and traditional investment vehicles, crypto is new and confusing. To make matters worse, there’s so much hype surrounding it in the personal finance world that research feels like reading a data science textbook through a swarm of bees.
Mercifully, we’re not here to explain what crypto is, or how the mysterious blockchain technology works (others have done that intolerably boring work for us). Rather, we’re going to release you from caring about crypto in the first place!
So it’s our personal opinion that investing in cryptocurrency is bad and stupid, and you shouldn’t do it. Here’s why.
Why we think investing in cryptocurrency is bad
Cryptocurrency is terrible for the planet
The senseless and catastrophic environmental impact of cryptocurrency is the number one reason I will never engage in cryptocurrency investing.
- Bitcoin mining uses more electricity than many countries, and it’s growing every year.
- A single Bitcoin transaction burns enough electricity to power the average American home for almost three months.
- A great portion of that electricity comes from burning fossil fuels, which is driving mass extinction, famine, disease, and war.
- Crypto trading also produces 30,000 tons of electronic waste by driving continuous hardware obsolescence.
Even if they were to address every other qualm I have, I cannot knowingly pour my hard-earned money into an enterprise that burns tangible finite resources to create imaginary digital resources.
I don’t have faith that cryptocurrency is a viable source of wealth. But even if it were, I don’t want money more badly than I want a livable planet.
When we invest money, it’s inevitable that we’ll facilitate further pollution. But if I’m gonna pollute, let it be by creating goods and services that improve lives in meaningful ways that offset their cost—not in the creation of ephemeral wealth for wealth’s sake. I’m not Nero, I ain’t here to play the fiddle while Rome burns.
Cryptocurrency would destabilize world finance
- Cryptocurrency has the potential to destabilize governments by undermining their ability to regulate and control capital.
I know there’s a portion of people reading who rub their hands together at this one and say “heh heh, good!”
And I get it. I think our representatives suck and our government is often shitty! People have every right to be furious and seek meaningful change!
But I struggle to think of a more destructive way to express that dissatisfaction than intentional devaluation or disruption of currency regulation. Especially of the American dollar, which has so many foreign bond holders and exchange dependencies that it’s practically an international default currency.
The collateral damage would be unimaginably catastrophic. Think of the the Great Depression, but make it global. Runaway inflation, double-digit unemployment, food and manufacturing shortages, healthcare rationing, armed conflict… Real people would die. Their deaths would’ve been preventable. And it sure wouldn’t be our shitty senators, or the people wealthy enough to speculate on a cryptocurrency investment.
It’s true that our house has a crumbling foundation—but we can repair that. Currency deregulation and intentional destabilization is like taking a wrecking ball to the entire town. What kind of lunatic wants to see that come to pass? Not me.
Cryptocurrency facilitates crime
Anonymity, privacy, opacity, decentralization, lack of third-party or regulatory oversight… a lot of the core “benefits” of a digital currency make it an ideal accomplice in some truly heinous criminal activities.
- One quarter of Bitcoin users are involved in illegal activities.
- Virtual currency is the preferred payment method for sellers on the dark web, including human traffickers, child pornographers, drug cartels, hackers, ransomers, kidnappers, and terrorists.
The nature of these crimes really matters to me here. To be clear, we think everyone of sound mind and legal age should be able to sell all the blowies and buy all the magic mushrooms they can handle, with any legal tender!
But cryptocurrency is a blessing for people wanting to commit legitimately harmful crimes. Crypto greatly simplifies the process of accepting, moving, and laundering money. Which makes avoiding detection and prosecution magnitudes easier. That’s not something I want to further incentivize.
Why we think investing in cryptocurrency is stupid
Cryptocurrency is a bad product
Here’s one of the easiest routes to a bad investment as an investor. Ask yourself if people are more excited about owning and actually using the product—or generating wealth from eventually selling the product?
Using bitcoin as intended—as a virtual currency—is a massive pain in the ass.
- Merchants and stores do not widely accept it.
- Its value is so volatile that prices fluctuate constantly.
- Crypto transaction fees are also volatile, and have been as high as $60 or more. What the actual fuck!?
- Unlike cash, it’s subject to capital gains tax. When you eventually sell it, you’ll owe the gubbernmint up to 37% of its value.
- You can permanently lose it. If you get hacked, you’re shit out of luck. And we’ve all heard the horror stories about lost keys.
- You have to sort through one billion scammy, scummy companies to facilitate its buying, selling, and general use on a cryptocurrency exchange. A crypto wallet isn’t FDIC insured, like normal bank accounts.
- No regulation also means no protections. If you buy something and your seller never ships it, there is no process to seek redress.
Despite being a terrible product, it does have really devoted adherents.
Have you noticed that people who are into crypto are really into crypto? And how those people seem eager to talk your ear off about how amazing it is? It’s because the more people who join them, the less risky their “investment” becomes. In other words…
Cryptocurrency is a pyramid scheme
I know what you’re thinking: How could we say something so controversial, yet so brave?
The only way for cryptocurrencies to grow in value is by recruiting more participants into the scheme. This does two things. Firstly, it creates more scarcity, which raises its perceived value, often making its early adopters rich. Secondly, it conveys legitimacy, which attracts more investors to start investing in cryptocurrency, continuing the cycle. Deflation is built into its very nature.
Can people get rich participating in pyramid schemes? Sure. Fewer than 1% of them, but it happens! The other 99% will break even or lose money. I don’t like those odds.
Get-rich-quick schemes are terrible for poor people, and we never recommend them as a healthy part of any investment strategy.
Market diversification is making cryptocurrency worse, not better
Usually, competition improves marketplaces. But for crypto, diversification is confusing and hurting the core market.
A lot of my criticism has focused on bitcoins, but there are many other cryptocurrencies. The problem is that legitimate companies with well-thought-out products exist side-by-side with joke coins, garbage NFTs, and fly-by-night scams.
You need to build investments on trust. The crypto market is saturated with terrible diversification. It’s the same problem Amazon is facing, which I described here. If every search leads the searcher to a thousand options for products, and most of them are garbage Chinese knockoffs, you’ll eventually drive away the audience you once held captive.
What truly drives the cryptocurrency market isn’t high-minded idealists trying to revolutionize global fiscal policy. It’s a gold rush of people trying to get rich quick.
Regulation is coming for cryptocurrency
The value of crypto has gotten big enough to attract the attention of that which it most fears and hates: regulatory scrutiny.
The global legal status of cryptocurrency is patchwork and constantly changing. China, once the world’s most prolific bitcoin miner, recently banned cryptocurrencies altogether. And they did so for many of the reasons outlined in this article, namely its environmental impact and the proliferation of criminality. And it’s not the only country!
Your “investment” in cryptocurrency could quickly become worthless if regulators see fit to do so. Every scam, fraud, hack, and financial crime associated with the cryptocurrency market brings it one step closer to regulatory oblivion.
You aren’t investing in cryptocurrency—you’re speculating
Fundamentally, I wouldn’t even classify money spent buying cryptocurrency as an investment.
And I’m not opposed to all forms of speculation! In my roughly $1,000,000 portfolio, I have about $2,000 invested in stocks that are total long-shots. It’s pretty likely I’ll lose that money. But they’re experimental biomedical products. So if they succeed, people’s lives could be radically changed for the better. And that’s a speculation I don’t mind making! Especially when you consider it’s a tiny percentage of my overall assets.
So that’s our take on cryptocurrency. In conclusion, it’s bad for the planet, bad for society, volatile, crowded, and not even a great product to begin with!
On my authority as a certified and ordained Internet Person, I hereby decree that you don’t have to care about cryptocurrency anymore, or feel FOMO for not buying dogecoins! Skip this “investment” and focus your money on the kind of boring, unsexy, modestly productive assets that are much more likely to build stable wealth for you and a better world for the rest of us.
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If you want a deeper dive into any of these talking points, I highly recommend checking out the following articles by Friend of the Blog Tanja Hester. She goes into much more detail, and she’s incredibly thorough and scrupulously ethical. (Isn’t she always?)
- Is it Ethical to Invest in Cryptocurrency? on Our Next Life
- Why We Don’t Buy Bitcoin or Any Cryptocurrency — And You Shouldn’t Either on Our Next Life
And here’s a few more tidbits on related topics…
- Booms, Busts, Bubbles, and Beanie Babies: How Economic Cycles Work
- 10 Ways to Spot Financial Scams and How to Defend Yourself
- Why Are Influencers Using MLM To Sell Shady Financial Products on Instagram?