Bitcoin ETF will stir the clearest speculative bubble in modern times if the SEC is approved

Cryptocurrency is not a retirement plan

Nobody has ever invested in Bitcoin. It’s just speculation. This is a distinction that Gary Gensler, chairman of the Securities and Exchange Commission (SEC), kept in mind when the SEC made its decision to unwind a VanEck proposed application for a Bitcoin Exchange Traded Fund (ETF).

Gary Gensler – Chairman of the Securities and Exchange Commission

Originally it was reported that the SEC would likely make a decision in June but delayed the agency by issuing a policy that would allow the public to comment on the proposed regulatory change around VanEck’s Bitcoin ETF. If the regulator gives VanEck the green light, private investors will have significantly more options to access Bitcoin.

Additionally, people with self-managed 401k (private pension funds) as well as individual retirement accounts (IRAs) are more likely to invest those tax-free funds in crypto. Six companies have signed up to list crypto ETFs, including the largest retail investment brand, Fidelity. If one accepts it, it is easy to imagine the speculative craze going into a frenzy. If so, the government would be promoting, or better supporting, the most obvious speculative bubble of modern times.

You may be wondering, “Isn’t everyone free to choose their own investments?”

The answer is yes. However, citizenship does not entitle you to defer taxes. Because tax deferral is a matter of public policy.

The government is shifting taxes on pension funds for two good reasons. Society benefits when people accumulate savings because they reduce their chances of getting poor. And it is more profitable for people to invest than to consume because the land is accumulating capital.

Bitcoin and other cryptocurrencies do not meet these conditions. It is clearly not an investment. If you think it doesn’t matter, try telling your spouse that you used all of your family’s savings to buy a lottery ticket. You’re sure to get mad!

Money for buying lottery tickets is not about saving, but simply consuming. Cryptocurrencies are similar.

Cryptocurrencies do not deserve recognition in the US

Benjamin Graham, an investment guru on Wall Street, once defined investing as an activity that, after careful analysis, “promises security for capital and a satisfactory return.” With a decline of 20% per day in May and 50% in a month, it is clear that cryptocurrencies do not promise any security.

Since legitimate investments also fluctuate, what distinguishes them from “speculative” ones? According to the economist John Maynard Keynes, speculation is primarily concerned with investor sentiment. Not “how much is something worth?” instead of “What do other people think?”. Conversely, a real investor can ignore psychology. This person values ​​their investment based on its intrinsic value. Often times, value comes from the revenue it generates, not the excitement in the marketplace.

Bitcoin does not generate any income. It’s all worth it for the sake of the rumors.

VanEck quotes “The Investment Case for Bitcoin” on his website. They suggest that “Bitcoin is increasingly used as an asset of monetary value”.

The side emphasizes:

“It has value because it has value.”

In fact, Bitcoin is not used as a currency. Nobody asks about the price of a washing machine in Bitcoin.

People speculate on Bitcoin to make US dollars – a currency.

VanEck’s second argument that “Bitcoin is still accepted” is not an investment case. Instead, it fits with Charlie Munger’s statement – “someone else trades the coins, and you decide” to trade them too.

VanEck also regards Bitcoin as “digital gold”. But gold is not an investment. It does not generate income and there is no sane way to value it.

There is a striking difference between Bitcoin and precious metals, but not in favor of Bitcoin. Gold has an industrial function and has been worth as much as money for thousands of years. At the same time, gold has value, but the inability to calculate its exact value makes it speculative.

Bitcoin, on the other hand, is a speculative vehicle with no intrinsic value other than keeping the secret that drug lords are most interested in.

Bitcoin is not a currency and it is not designed to serve as currency. It’s much slower than payment processing systems like Mastercard and Visa (Bitcoin processes 4.6 transactions per second, compared to Visa 1,700). Plus, it’s too volatile to be used as a payout metric.

The best-known and practically only provider that accepts Bitcoin is Tesla. The company is also known for its “investments” in Bitcoin. After Tesla piqued public interest (and pushed the price up), Tesla informed Wall Street (and its supporters) that it had raised $ 272 million from its so-called investment.

Next, Tesla CEO Elon Musk decided that Tesla wouldn’t sell cars for Bitcoin after all. Musk now requires legal currency payments.

Bitcoin promoters often cite the blockchain technology that these coins work on. Blockchain has produced tangible gains in the logistics sector, but Bitcoin brings no benefits to this technology. They are not relevant for investment purposes.

VanEck also affirms the value of scarcity. However, there are more than 1,300 cryptocurrencies and there is no limit to new ones. Plus, the scarcity is not enough to define it as an investment. Things that are worthless, even if they are rare, are still worthless.

VanEck’s next rationale is that Bitcoin adds a “portfolio diversification” feature. Keynes once said, “One good stock is safer than ten bad stocks.” Buying a range of assets, each of which has no value, will not add value or safety to all.

VanEck’s final statement: “Demand is increasing – more and more investors are buying Bitcoin, including institutions.” That is rather a deceptive theory.

Securities managers should study VanEck’s claims. If “increased demand” is the reason, what happens when demand collapses?

Neither the press nor Wall Street are sufficiently suspicious of cryptocurrencies. Everyone has fallen into the monstrous folly that because Bitcoin is “volatile” it should only have a fraction (rather than not) in investor accounts. But volatility is not the main problem. This is just the tip of the iceberg, potentially worthless.

It should be noted that the average Washington retirement account is $ 65,000. Some people will invest most of their savings in crypto and may lose their retirement money entirely.

It is the responsibility of the SEC to verify that the proposed ETFs operate in a fair and liquid market. They usually don’t check the investment value.

In that case, they should. Congress has ruled certain assets unfit for retirement, including collectibles like postage stamps and rare (tangible) coins. Because it is not easy to accurately value these assets. This certainly applies to cryptocurrencies. The SEC should clarify this point in the legislation.

Additionally, the SEC can reasonably determine that liquidity cannot be guaranteed because it can never meet investor demand for an asset with no intrinsic value.

Gensler taught crypto at MIT and is supposed to sympathize with the industry. The SEC is also under pressure to act as Canada has approved several crypto ETFs. The industry also exerts gentle pressure by recruiting former managers to work in the industry (two former SEC chairmen serve as industry advisors).

Gensler should consider a proposal from the Governor of the Bank of England, Andrew Bailey, who said that cryptocurrencies “have no intrinsic value. Only buy them when you are ready to lose all your money. “

After the 2008 crash, Gensler – nominee to chair the Commodity Futures Trading Commission (CFTC) – told Congress that he would work to ensure another financial failure. But nobody can stop the crypto boom, not even Gensler. However, it can limit a lot of damage. Cryptocurrencies do not deserve US adoption.

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