Business

An Open Letter To The Media RE Sound Premise Used to Support an Unsound Conclusion

This is an open letter to all financial media organisations to stop referring to Bitcoin and other cryptocurrencies as investments.

The sound premise of investing today, to earn more back more money in the future has been taken to an illogical conclusion. That is, it is possible to outlay money today to invest in Bitcoin or any other “hot’ cryptocurrency at the time, and expect to earn more back at a later date, based upon the principles of investment.

u.s market invest in bitcoin

The old financial media publications (as they are known) are now blasting headlines across their magazines and other mediums headlines like these two: ‘How to Invest in Bitcoin and other cryptocurrencies” and “The Ultimate Guide to investing in cryptocurrencies!”

In the motivation to attract more millennial investors to read their publications (in print or online) is resulting in the words investment and speculation to be used interchangeably, misleading the average person to believe that it’s not speculation toinvest in Bitcoin or other cryptocurrencies.

I applauded Facebook for banning all crypto ads earlier this year, including self-described “crypto-genius” James Altucher, who is currently selling (Read: scamming) a “Crypto Trader” package that includes a “six-video crypto masterclass” and other services for $2,000 (Source: Recode).

The well-known stock spruikers, who preach the value investing philosophy, are going down the same road. But that was to be expected, their income depends on convincing people they know what the latest “hot” trend is to get you rich.

The logical definition has changed since the first edition of Security Analysis in 1934 (ch.4), written by Benjamin Graham and David Dodd.

An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.”

There are three important aspects:

  1. Thorough analysis
  2. Promises safety of principle
  3. [promises] a satisfactory return

Investment analysis, in the case of stocks, involves the thorough analysis of the business assets, liabilities, expenses, profits or losses, the industry dynamics, and their competitors, which are based upon qualitative and quantitative analysis factors. The stock price reflects the underlying changes that occur within the business, as they affect the overall value of the business, thus affecting the value of the stock price in most cases over the long term.

Anyone who promotes an approach to “investing” that ignores the underlying asset by focusing on the price movements of the asset alone is a charlatan. Plain and simple. The only people who get rich from “trading programs” are the sellers of such dubious programs.

Thinking that you can invest in Bitcoin or any other speculative cryptocurrency is like playing with dog shit thinking you’re playing with brown play-dough.

This segue into what type of asset Bitcoin and other cryptocurrencies are, NOT what class it’s in.

Cryptocurrency is not an asset within a class of its own, the whole asset class system is dubious at best, especially when you realize it was created by Wall Street marketers to help investment bankers market their latest new product, which is a classic case of product differentiation. It is quite disturbing that many business schools teach this nonsense.

For there are only two types of assets:

  1. An asset that produces income (bonds, businesses, farms, real estate, for instance)
  2. An asset that does not produce income (Gold, Silver, Cryptocurrencies, for instance)

As a financial media organisation, like any media organisation, you build trust by reporting factual information and calling out the misinformation, spruik by others, for your readers. The Economist is a great example of a trusted financial news source, they haven’t participated in this type of nonsense just to get a few extra eyeballs on their web pages or printed magazine.