Matthew in the middle | Your crypto is worth less than pocket change

Bitcoin or cryptocurrency (aka “crypto”) is a decentralized digital currency that is unregulated and does not depend on central authority or government oversight. The word “crypto” means secret or concealed. That alone should make the hair on your neck stand on end. I had many crypto brothers gushing about the quality of crypto, until I started asking questions, such as “What does decentralization mean?”

“Man, it’s unregulated and there’s no government oversight of their operations.”

“Is this a good thing? What if the crypto company is fraudulent? »

Besides the lack of government regulation or oversight, many of these crypto businesses are constantly moving from country to country in search of a safe haven without regulation or tax. It suits me well !

“Next question, if this is a digital currency, can I use my crypto to buy groceries?”

“No, man, you can’t do that.”

“So crypto is not a currency. It is a speculative investment. Sort of like wheat futures.

Note: Wheat futures contracts are standardized, exchange-traded commodity futures contracts. The contractual buyer agrees to take delivery of a specific quantity of wheat (i.e. 5,000 bushels) from the seller at a predetermined price on a future delivery date. Commodity exchanges have existed since 1877.

With the crypto market, you trade your money and they give you bitcoins or tokens that go into your digital wallet. There are thousands of token types on many crypto exchanges until they go bankrupt and you lose it all. A crypto exchange is nothing more than a clearing house where you buy and sell your commodity, like the New York Stock Exchange or NASDAQ. These tokens are nothing more than magic beans, that is, nothing. It’s a speculative investment that you hope and pray for others to come and pay a higher price for the magic beans, so the value of your magic beans goes up.

To give an analogy, let’s say you walk into Caesars Casino in Las Vegas. You give them your $1000 in cash and they give you $1000 in Caesars chips to play with. You sit down and play Blackjack for a few hours and at the end of your game, you head to the cashier’s cage to turn your Caesars chips into cash. Pretty simple, huh? Now what if the Caesars executives took your money and went across the street to the MGM casino and lost while playing craps. So now when you want to cash out your Caesars token all of a sudden they stop redemptions and you are stuck with useless Caesars tokens that you bought for $1000 and now they are worth $0. The same goes for the crypto market.

Sam Bankman-Fried (“SBF”) was supposed to be the new “it,” the wonder boy of crypto. Granted, he was a smart guy who graduated from MIT and worked as a trader at Janes Street Capital. He founded Alameda Research, which traded in crypto and discovered an arbitrage game (difference in price for the same asset class) where he could buy a certain type of crypto in the Bahamas for $1,000 and sell it in Japan for $1,050. That doesn’t sound like much, though, a 5% single-day rate of return that could be scaled (increasing your investment capital), so now you’re buying crypto for $10,000,000 and selling for $10,500,000 a day. That’s a risk-free daily profit of $500,000. Not bad. He then founded FTX, a Bahamas-based crypto exchange.

SBF told Sequoia Capital (a Silicon Valley venture capital firm) about its so-called FTX super app: “I want FTX to be a place where you can do whatever you want with your next dollar. . You can buy bitcoins. You can send money in any currency to any friend anywhere in the world. You can buy a banana. You can do whatever you want with your money from FTX. They bought the land and invested $210 million in FTX, even though SBF was playing the League of Legends video game on their Zoom call. FTX has raised over $400 million from 69 institutional investors, including Blackstone, SoftBank and the Ontario Teachers’ Pension Fund. These investments are now worth $0.

Ultimately, every investor should ask themselves a few simple questions:

Can you understand the product and explain it to me in simple terms?

Is it transparent?

Does it have a long term track record?

Can it be shorted (downside bet)?

If you answered “no” to any of these questions, run, do not turn away from this investment.

Matthew Owen resides in Eureka and believes the First Amendment allows for free speech.