Cryptocurrencies have acquired a bad name lately and for good reason.
Bitcoin, the open market face of the largely unregulated cryptocurrency industry, lost two-thirds of its value last year compared to 25% in the S&P 500. A better investment for 5 years.
The Federal Trade Commission says that while cryptocurrencies are still a mainstream payment method, they are “a surprisingly common way for scammers to get people’s money. Since the beginning of 2021, more than 46,000 people have been scammed to make over $1 billion.” It reportedly lost more than $1 in cryptocurrency; it reportedly lost about $1 to $4. other payment methods. ”
There is no central regulator to flag suspicious transactions and no way to reverse transactions. Most people don’t understand cryptography and are easy prey for online scammers.
From Super Bowl ads to Hollywood celebrities, the pitches are pouring in. Kim Kardashian recently paid $1.26 million for promoting the security of cryptocurrencies without revealing that he received $250,000 in his Instagram post about his EMAX token, a cryptocurrency. I was fined a dollar and refused to pay.
SEC Commission Chairman Gary Gensler calls the cryptocurrency market the “Wild West.”
In a report ordered earlier this month by Treasury Secretary Janet Yellen, the Financial Stability Oversight Council said, “Crypto-asset activity could significantly impact the stability of the U.S. financial system if its interconnection and scale with the traditional financial system continues. It could pose a risk,” he concluded. Growing “…without adhering to proper regulations”
“Many crypto activities lack basic risk controls to protect against run risk or to prevent excessive leverage,” the council found. “Crypto prices appear to be driven primarily by speculation.”
Yellen and Warren Buffett are considered the biggest long-term investors in the United States, and JPMorgan Chase CEO Jamie Dimon has also voiced concerns.
“Who would argue with Warren Buffett?” said Marc McIntosh, a finance professor at the University of Augsburg and former Wall Street investment banker. An alternative to the dollar. ”
But if investors need a “potential store of value” like gold to withstand extreme economic events, it could potentially be possible, he said.
“Could cryptocurrencies act as a hedge against negative stock market movements? Perhaps, but we need more historical data on how cryptocurrencies perform against the stock market as a whole,” McIntosh said. ‘ said.
The council recommended further research on the rule-making powers of federal financial regulators, legislation on the risks posed by “stablecoins” whose value is tied to currencies, commodities, or other financial instruments, and the industry. .
“Cryptocurrencies haven’t changed since the global recession of 2008 and the cyberpunks who started cryptocurrencies because they didn’t trust traditional financial institutions,” said Vivian Huang, a professor at the University of Minnesota’s Carlson School of Business. “Bitcoin is risky. It is volatile and does not generate cash flow. are widely adopted.”
Bitcoin has risen about 240% to 40% in five years in the S&P 500.
“Correlation in Cryptocurrency Price Fluctuations [and stocks] It’s been on the rise since March 2020,” said Fang. Prior to 2020, it was nearly zero. We have injected so much liquidity into the economy. This shows investors that it’s okay to trade risky assets, including high-growth stocks. they all shot. They are now coming down in parallel motion. If the stock market goes down, so will the cryptocurrency. “
There are other impacts as well, including significant negative environmental impacts.
cryptocurrency swoon Recently bankrupt Compute North, a cryptocurrency “miner” based in Eden Prairie. Compute North raised $385 million in capital this year, boasts $500 million in assets, and has data centers in Nebraska, Texas, and South Dakota.
Cryptocurrency miners are controversial because they consume huge amounts of energy to generate cryptocurrencies.
A new cryptocurrency mining operation in Jamestown, North Dakota, uses twice as much energy as an entire city of 16,000. The Jamestown operation quickly ranked as his second largest customer for Minnesota-based Otter Tail Power Co.
And there is Related fallout among neighbors Loud, energy-sucking mines.
“I think it’s a risk, but it’s worth it,” Fang added. “Most crypto stocks do not generate cash flow and are difficult to calculate their value, which attracts speculators. [regulators] What to do, fighting with President Biden [ordered] Regulators need to come up with a framework for regulating digital assets. That’s not a sign the industry is dying. “