Author: Abby Copeland, Graphics: Carol Lu
The BRB Bottomline
Cryptocurrency is more popular than ever. Whether the Evergrande fiasco is popping up in your news feed or Ethereum is a part of your portfolio, it seems like everyone is obsessed with cryptocurrency. In the following article, investing columnist Abby Copeland attempts to discover the true sources fueling the crypto-craze and why the ideology backing it is problematic.
Silicon Valley’s Search for the Latest Gold Rush
In the post-mortem phase of the 1990s dot-com era, individuals in Silicon Valley are searching for the latest get-rich-quick scheme. Many investors are moving away from institutional markets and are adding popular cryptocurrencies such as Bitcoin and Ethereum to their portfolio. Both young and old traders have found themselves caught in the trap of the “crypto-craze.”
Crypto-anarchism
What is Crypto-anarchism?
In order to understand the appeal of cryptocurrency, one must first understand Crypto-anarchism. Crypto-anarchism, a political ideology closely tied to Libertarianism, is the belief that advanced cryptographic software should be used to protect individuals’ financial, political, and economic interests from the government. A prime example would include when an individual makes transactions using Bitcoin so the government cannot monitor their digital footprint.
The Economic, Political, and Psychological Appeal of Crypto-anarchism
Advancements in cryptographic technology, coupled with immense economic ambition in Silicon Valley, have contributed to the modern-day crypto-craze. Many members of the Silicon Valley community claim that the government has no place in heavily regulating financial interests. However, these individuals use Crypto-anarchism as a smoke-screen. Ironically, it seems Silicon Valley will only support government regulation as it benefits them. In the case of cryptocurrency, many will claim they are anti-government to advance their economic interests.
Furthermore, the current political climate serves as a catalyst for Crypto-anarchism. With a recent presidential transition and a country more polarized than ever, left-leaning Silicon Valley individuals are utilizing cryptocurrency trading as a method to rebel against traditional governmental systems. In addition, many members of this alleged anti-government camp believe that by buying cryptocurrency, they are taking part in a “fintech revolution.” From a psychological perspective, participation in this fintech revolution results in investors believing that they are evoking change and making history.
The Problem
Despite the current political and ideological forces that are driving the crypto-craze, investing in cryptocurrency, in my opinion, is a dangerous and reckless move.Firstly, most cryptocurrencies have no intrinsic value. It is therefore challenging to evaluate cryptocurrency accurately. Moreover, the very anarchist and decentralized nature of cryptocurrency that Silicon Valley champions has no place in America’s heavily regulated financial sphere. Trading cryptocurrency under Crypto-anarchism also violates the fundamental rules of trading psychology. Trading psychology emphasizes investing as objectively as possible and never letting your emotions influence your decision to buy or sell. However, crypto-anarchists are letting the emotional appeal of cryptocurrency influence sway them. Cryptocurrency is undoubtedly trendy, but time and time again the market has demonstrated that just because an asset is popular or innovative does not mean that it is a safe and reliable investment. Given the concerns of government regulation and the lack of intrinsic value, cryptocurrency is ultimately an extremely high-risk asset.
What’s Next
Despite the apparent risks, many traders will continue to invest in cryptocurrency for the foreseeable future. Even if crypto-anarchists make stock-market gains, their positive returns are likely driven by speculation, big-tech market manipulation, and an overvalued bull market. Meanwhile, the downside for cryptocurrency is extremely high. Due to the volatile nature of cryptocurrency, many investors will encounter sizable losses. But without intrinsic value or a path to regulation, this trend will mostly be contained to crypto-anarchists in the Silicon Valley bubble, while conservative investors remain more skeptical.
Take-Home Points
- Silicon Valley is searching for the latest gold rush and buying cryptocurrency in greater amounts than ever before.
- The appeal of cryptocurrency can be explained by Crypto-anarchy, the belief that advanced cryptographic software should be used to protect individuals’ financial, political, and economic interests from the government.
- Although many in Silicon Valley claim that the government has no place in heavily regulating financial interests, they support government regulation when it benefits them. In the case of cryptocurrency, many will claim they are crypto-anarchists to support their own economic interests.
- The current political climate has also served as a catalyst for Crypto-anarchism. Left-leaning investors are using Crypto-anarchism as a method to rebel against traditional governmental systems.
- Ultimately lack of governmental regulation and intrinsic value makes cryptocurrency an extremely high-risk asset.
BITCOIN, Cryptocurrency and Blockchain are not monetary tools, but rather are concepts of how money should be managed in an anarchic future where governmental authority is unnecessary and undesirable and money management is based on voluntary cooperation and free association of individuals and groups.
Crypto-anarchists are ignorant, arrogant, and immersed in hubris. They are ignorant of the actual process involved in the movement of their money Their money is housed digitally on a direct access storage device hardwired to a mainframe in a secure computer center. They are ignorant of the actual roles and responsibilities of the government (politicians and regulators).
Regulatory agencies serve two primary functions in government: they implement laws and they enforce laws. Regulations are the means by which a regulatory agency implements laws enacted by the legislature.
They Federal Reserve Bank (FRB) oversees two of the three banking risks: 1) Interest rate risk is the risk posed by adverse movements in interest rates that cause a mismatch between the rates banks set on customer loans and on deposits. 2) Market risk is defined as the risk of losses arising from movements in market prices. The risks subject to market risk capital requirements include but are not limited to: default risk, interest rate risk, credit spread risk, equity risk, foreign exchange (FX) risk and commodities risk for trading book instruments.
The Office of the Comptroller of the Currency oversees Operational Risk. The OCC is the primary regulator for the USA payments system. “The Currency and Foreign Transactions Reporting Act of 1970—which legislative framework is commonly referred to as the “Bank Secrecy Act” (BSA)—requires U.S. financial institutions to assist U.S. government agencies to detect and prevent money laundering.
Crypto-Anarchist’s will soon discover that we live in the real world where all governments have very, very sharp teeth when the monetary system is being attacked by people advocating hiding monetary transactions.
There are nine counties that ban crypto: According to the U.S. Library of Congress, as of November 2021, a total of nine countries have banned cryptocurrency completely. These countries are Algeria, Bangladesh, China, Egypt, Iraq, Morocco, Nepal, Qatar and Tunisia.