On today's CoinMarketCap episode, we take a dive into the most common claims
against crypto and how real they actually are.
Before we dove in, make sure to comment below.
What are the most common negative things you hear people say about crypto?
All right. Let's get right into it.
The bear market of 2022 has brought up some familiar questions about the future
of cryptocurrency, especially among new investors and crypto critics.
However, this is definitely not the first bear market that the crypto
industry has seen as far back as 2018 and the last big bear downturn,
Bitcoin experienced its third bear market plunge of 80%.
This theme seems to run true in 2022 as well, three years later.
Regardless of what the numbers say, we seem to be in a bear market
simply because investors are feeling the pinch of disappointment as Bitcoin
plunged below 20,000 for the first time since December of 2022.
The total market cap of all cryptocurrencies is also down
about 2 trillion since its 2021 peak.
And some of these disappointed investors have taken one look at these numbers
and started crying out:
Scam! Crypto is dead! FUD!
We'll take a look at some of the key discussions around cryptocurrencies
and whether there is any truth to these claims.
Claim number one.
Cryptocurrencies are a scam because they're not backed by anything.
This lack of backing
argument is one of the most popular claims made by crypto critics.
One reason it is so popular is that it is mostly true.
Cryptocurrencies, for the most part, are not backed by any
asset like gold or silver or by the government that issued it,
but is being backed by something, a valid argument for a currency to have value.
Let's look at the US dollar,
which by the way has not been backed by gold since 1971...
and now derives
its value on the promise of the US government to pay its debts.
According to data presented by Thin Bull, the real value of the US dollar
has decreased
sixfold over the past 50 years since it decoupled from the gold standard.
The purchasing power of $1 in 1972
has dropped to just $0.14 by 2022.
That's because the US government has stopped capping the supply of dollars
as a ratio of how much gold it had in reserve
and has since taken the liberty of printing trillions of new dollars.
Meanwhile, if you ignore the short term crashes and zoom out the value of Bitcoin
has skyrocketed over the past decade despite not being backed by anything.
Many believe that Bitcoin does not need to be backed by any physical asset
or government in order to have value its unique and intrinsic monetary qualities,
namely its absolute scarcity via its 21
million hard supply cap and the immutable finality
of its transactions are what proponents say give it value.
The decentralized way that Bitcoin works is another major reason
that its proponents believe it has better monetary properties.
That's because Bitcoin's monetary system is not owned
by and cannot be manipulated by any government or central bank.
Therefore, the 21 million supply
cap can't be diluted and transactions cannot be reversed.
On the other hand,
fiat currencies are in the full control of the entities that issue them.
So while it's true that cryptocurrencies are not backed by anything physical
or by any government, that doesn't mean that they're not valuable.
Since fiat currencies that are backed by governments
have seen their values diminished significantly over time.
Claim number two.
Cryptocurrencies are a scam because they're used for illegal activities.
This claim is also popular, but not entirely true.
While it's correct that cryptocurrencies can be used for illegal activities
like money laundering or drug trafficking, isn't that true
for all forms of currencies in the world to a much, much larger degree?
Moreover, that's not the only thing cryptocurrencies are used for.
This may come as a shock to some critics, but the vast majority of transactions
are used for legal activities like buying coffee, sending money instantly
across borders to feed your family or investing in projects.
I know. Shocking.
The reason this statement is popular is that it is easy to sensationalize
and make headlines like, Oh, cryptocurrency used in drug trafficking.
However, fiat currencies like the US dollar are also used for illegal
activities.
In fact, CoinMarketCap Alexandria quoted data from chain
analysis in 2021 that stated In the offline world, anywhere
between 800,000,000,002 trillion in fiat
currency is laundered every single year.
By contrast,
laundering accounted for just 0.05% of all crypto transactions in 2021.
A key point to note here is that the whole crypto is a scam
narrative is pushed by media companies as it gets more traffic.
In a recent report by Similarweb, it became clear
that terms like cryptocurrency investing or How do I invest in crypto
generated fewer views as compared to negative phrases
like crypto is a scam or is crypto a scam?
Similarweb Comparative Web metrics show that in May of 2022,
the scam SERPs garnered 353%
more search traffic than they did six months ago.
Meanwhile, Volume four How Do I Invest in crypto topics
decreased by 28.9%.
Claim number three.
Cryptocurrencies are a scam because there are two volatile.
Cryptocurrencies are volatile, but that can be both a good
or a bad thing, depending on how you look at the situation.
Some people see volatility as a good thing because it means there's potential
for big gains.
Others see volatility as a bad thing because it means there's potential for
big losses.
But either way, volatility doesn't make cryptocurrencies a scam.
Investors in stocks and bonds also have to deal with volatility.
And like cryptocurrencies, the volatility of stocks and bonds
can be a good or bad thing as well.
So if we're going to say that cryptocurrencies are a scam
because there are too volatile,
then we should also say that stocks and bonds are a scam as well.
By the way, check out our guide to Scalping versus Swing Trading
to understand how people benefit from volatility.
Claim number four.
Cryptocurrencies are a scam because they're not regulated.
Cryptocurrencies are not regulated by governments on a wide scale like fiat
currencies are, but that does not mean they're not regulated at all.
For the most part, cryptocurrency fees are regulated by the code
that controls them, and this code is open for anyone to see.
While it's true that cryptocurrencies are not regulated
by the majority of world governments, they are still regulated in some ways.
You can check out our recent video into how crypto regulations
work in the US, China and the EU in terms of taxes and beyond.
Claim number five.
Cryptocurrencies are a scam because they're a bubble.
As with many trends in the tech world, cryptocurrencies
have shown signs of being a bubble that one day will eventually pop.
But again, that does not mean they are a scam.
Bubbles happen all the time in the financial markets.
For example, there was the dot
com bubble in the late 1990s and the housing bubble in the early 2000s.
But when they popped, not
all of the websites became worthless, nor did the properties.
Same with cryptocurrencies.
Some of them will survive and thrive.
However, it is worth remembering that cryptos are a speculative investment
and you should only invest what you can afford to lose,
which is again, pretty much all the same with shares and other investments.
Cryptocurrencies definitely are volatile.
Prices can crash at any time, and as they are not regulated
in the same way as the stock market by governments.
If you do lose money, you may not be able to get it back.
That said, your risk appetite has to be really high
if you decide to create a crypto portfolio.
However, just because there are risks involved, it does not make all of
crypto a scam.
Claim number one
Cryptocurrencies are a scam because they're not backed by anything.
This lack of backing argument is one of the most popular claims
made by crypto critics.
One reason it is so popular is that it is mostly true.
Cryptocurrencies, for the most part, are not backed 1 to 1 by any fiat
currency or physical scarce item like gold or silver.
Instead, cryptos are backed by the trust that people have in them.
Many believe that Bitcoin does not need to be backed by anything due
to its unique monetary qualities, namely its scarcity and immutability.
These are key aspects of the
cryptocurrency that allow it to work without anything like a 1 to 1
gold backing.
So does it matter if bitcoin is supported by anything physical?
The US dollar has long got off the gold standard, so
why do people still use this argument for cryptocurrencies?
It often comes down to what people define as the value of a cryptocurrency.
The term value has two meanings it could refer to a desirable thing
or service that someone would pay money for,
or it could be used in the financial sense,
the value of something evaluated in terms of monetary units.
This second meaning can be used to explain why Bitcoin supporters
might consider it a better option when compared to fiat currency.
That's because the decentralized way that Bitcoin works, as opposed to the fiat
currency system is one of the reasons
that crypto proponents believe it has better monetary properties.
Now let's take a look at how fiat currencies hold up under scrutiny.
Some of the most prominent cryptocurrencies, like the US dollar,
experienced year on year valuations regularly.
According to data presented by Fin Bull, the real value of the US
dollar has decreased sixfold over the past 50 years.
The worth of a single dollar was $1 in 1972,
but has dropped to just $0.14 by 2022.
So despite being backed by a world government, one of the strongest
currencies in the world has depreciated in value over time.
This is why it should not come as a surprise
why the price of cryptocurrencies is so volatile.
So while it's true that cryptocurrencies are not backed by anything physical
or by any governments that doesn't mean they're not valuable.