Worried about "losing money" in Cryptocurrencies?

Some family members and friends of mine are distraught right now because they feel that they have "lost money" by "investing" in cryptocurrencies which have "crashed". Lets take a fresh look at this.

We have been conditioned (note carefully my use of that word!) to believe that a successful “investment” looks like this:

• You save dollars that you earned by working. That is, you postpone your enjoyment of some “excess wealth” from your labor by saving it for the future, instead of spending it now. Savings is a form of delayed gratification.

• You buy a thing (an asset) as an investment using these saved dollars at some initial price. You park your excess wealth (savings) in this investment.

• You hope that in the future, the price (in dollars) of the thing you bought will be higher than it is now (appreciate in “value”), so that you’ll “make money”.

• You sell the investment sometime in the future at a higher “price”, receiving more dollars back, and you are “happy”.

That’s how we all think investment works, right? (disregarding the question of whether more “money” actually buys more “happiness”—but that’s an entirely different topic.)

Note my use of “air quotes” around all the words above. I use those to make you stop and think whether the words mean what you think they mean.

Obviously, if you put dollars into cryptocurrencies over the last year, and you look at the market prices (in dollars) for your crypto wallet today, you may be rather unhappy right now, because the dollar-denominated “value” of those cryptocurrencies looks a lot less than when you “bought” them.

Your perception is that you have “lost money”. Well, that’s only true if you sold the cryptocurrencies already—that is, if you converted your “investment” back into dollars, and got fewer dollars back.

“They” wanted you to experience emotional pain from the plunging exchange rates, to force you out of the cryptocurrency markets. They don’t want you to put your savings in something that isn’t a bank that they control— so they “helped” burn down the crypto markets, so that you would do precisely that, sell at a loss.

“They” want to sour your opinion of cryptocurrency, so that you’ll run away from it in the future and retreat back into their open arms of “safety” in fiat currency and banks (until they force you to use their own Central Bank Digital Currencies.)

But If you haven’t sold your crypto holdings, you haven’t really lost anything.

There is a set of fundamental assumptions that people make by viewing cryptocurrency “investments” (or any investments) in a particular way. You assume that:

1. In the future, the goods that you will want to purchase in exchange for “wealth” will (still) be priced in dollars, AND

2. The asset that you invested in has returned to you more dollars than you put in originally—so you “made money”—AND

3. That the dollars you get after selling the asset in the future will have at least the same purchasing power in the future that they have today, or at best, have more purchasing power than today.

Purchasing power means how many goods you can obtain in exchange for some fixed quantity of your “money”. Can you buy more, or fewer, gallons of gas with that “money”?

Question: if cryptocurrencies “fell” by 30% in dollar terms recently, but inflation (reduction in purchasing power of fiat dollars) is running at +10% (or higher) what is the real dollar-denominated impact to your net worth from the “fall in price”? It’s not really -30%, is it?

Have you stopped to think about it this way?

For those of you who understand how inflation works, you realize that #3 above—inflation— is a “hidden tax”.

Perhaps it is more properly described as a form of organized crime, because it amounts to theft of your wealth—the theft of your deferred gratification of excess labor—but a crime that most people simply accept, through conditioning, as “normal”.

What occurs when a currency like the dollar experiences “inflation” is that the prices of things you used to be able to buy — in dollar-denominated terms — are now “higher”, meaning you get fewer goods today with the same amount of dollars than before.

This means that an hour of your time at work converts into fewer goods at the store now, versus in the past. You have to work harder, to obtain less. Take gas at $7 versus gas at $3 as an example; or any grocery item you can think of that has “gone up in price” lately during the Biden (mal-)Administration. The “purchasing power” of your fiat dollars has been reduced.

Here’s the thing: what happens to your point of view about cryptocurrencies if you kept your cryptocurrency “investments” intact — didn’t sell them — but you simply stopped thinking about their “value” in dollar terms? What shift occurs in your thinking if you question all three of the key assumptions listed above?

In that case, perhaps you haven’t “lost” anything at all—as long as you haven’t panicked and returned the cryptocurrency back to the “market” in exchange for fewer dollars than you “bought” it with. Dollars which, coincidentally, now also buy you 10% less than they did a year ago when you “invested” them in cryptocurrency.

Question everything. Look very carefully at where inflation is occurring (literally all over the world.) This all stems from a common cause: Central Banks.

End. The. Fed.

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update: A commenter Dan D said that: “assets…have peaks and valleys over time”.

I replied with the below to add more clarity to what I was driving at in the post above, using a ‘shrinking yardstick’ analogy.

“ Assets...have peaks and valleys when measured *in dollar-denominated terms*. It’s difficult, but you need to train your mind to start to divorce the ‘value’ of crypto from being expressed solely by its exchange rate in fiat dollars.

The reason is that the length of your yardstick is shrinking, not so much that the thing you're measuring is getting longer.

A concrete example to grasp the problem here: think of a ‘dollar’ as a yardstick. Last year, ‘one yard of dollars’ equaled a gallon of gas. But now the dollar has ‘shrunk’ *relative to itself*, because of the effect of inflation. So now it takes ‘two yards of dollars’ to equal that same gallon of gas.

Its not that the gas (necessarily) became more ‘valuable’ to your daily life—you use as much as before, for the same reasons as before— because if it did, it would therefore justifiably require more of your labor to acquire; it’s that the thing you use to buy it with became *less* valuable. The dollar is ‘worth less’ in terms of units of gallons of gas.

Now take the space away from the two quoted words in the sentence above, and you'll see the endgame. “