Was 2022 finally a wake-up call for investors in the digital currency market? One of the world’s most-known cryptocurrency’s value ended 2022 at roughly a third of what it was at the start of the year; on January 1, 2022, it closed at $47,686.81, but by December 31, 2022, it closed at $16,547.501. Another leading company in cryptocurrency started 2022 valued at $32 billion and ended the year bankrupt with its founder being charged with criminal fraud.2
The world of cryptocurrency may have begun to crumble in the wake of bankruptcy and fraud, lawsuits have been filed and the SEC has begun cracking down on celebrities and influencers who are using their likeness to advertise cryptocurrency.3 Professional athletes, super models, and other well-known names have been caught in multiple class-action lawsuits for their involvement with these digital financial institutions.3 In December 2022, the now bankrupt cryptocurrency company announced that investors should not expect being able to recover their money. 4 “Celebrities and others are using social media networks to encourage the public to purchase stocks and other investments. These endorsements may be unlawful if they do not disclose the nature, source, and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement,” said the SEC in a statement from November 2017, cautioning against such investments. 3
While celebrities and influencers may be able to afford the volatility of a potential risky investment, the same may not be true for everyday investors. Many first-time or financially vulnerable investors put their money into cryptocurrency, believing their assets were as safe as those in an FDIC-insured bank account and, in the process, some watched as their entire life savings dissapeared.5
Though cryptocurrency is a relatively new concept, the fallout is not new or novel. Conmen and prognosticators disguised as well-intentioned financial advisors have been pushing potentially dangerous investment avenues since the beginning of markets – for example, Charles Ponzi was arrested for his phony investment schemes in 1920, more than 100 years ago.6
With digital assets experiencing unprecedented swings, it’s fair to ask: Is cryptocurrency an actual currency? Most currencies are stable and represent underlying value—the U.S. dollar, for example, is backed by the full faith and credit of the U.S. Government. But Cryptocurrency has no intrinsic value; without anything intrinsically valuable backing up cryptocurrency, its market value is based entirely on speculation.7 Whereas a stock is a security that represents the ownership of a fraction of a corporation, cryptocurrencies are backed by the faith of the people creating them. There is no underlying value in the form of assets, employees or property.7
The vast volatility of cryptocurrency more accurately resembles gambling than investing. As Nobel Prize-winning professor Eugene Fama says: “If it doesn’t have a stable value, it’s probably not going to survive as a unit of account. What that means is that its value is likely to go to zero at some point.”8
At Matson Money, we coach investors to avoid speculating and gambling with their life’s savings, and instead adhere to empirically-tested academic investing principles based on Nobel Prize-winning research. “Investors should invest for the next 20 years, not the next 20 minutes,” says Founder and CEO Mark Matson of Matson Money.
To help protect investors from the lures of the latest and greatest investing vehicle, Matson Money coaches investors to make decisions around their financial future that are based on the science of investing and aligned with their life’s purpose. When investors have a clear long-term investing strategy, we coach them to hold to three simple principles – own equities, diversify, and rebalance regularly to generate an opportunity for long-term wealth creation.
Discover how Matson Money is reimagining investing through the application of Nobel Prize-winning investing principles here.
1. Bitcoin. Coin Market Cap. Retrieved from https://coinmarketcap.com/currencies/bitcoin/historical-data/
2. Gura, David. 2022 was the year crypto came crashing down to earth. Published December 29, 2022. Retrieved from https://www.npr.org/2022/12/29/1145297807/crypto-crash-ftx-cryptocurrency-bitcoin#:~:text=At%20the%20start%20of%202022%2C%20the%20crypto%20company%20was%20valued,been%20charged%20with%20criminal%20fraud.
3. SEC Statement Urging Caution Around Celebrity Backed ICOs. U.S. Securities and Exchange Commission. Published November 1, 2017. Retrieved from https://www.sec.gov/news/public-statement/statement-potentially-unlawful-promotion-icos.
4. Korn, Jennifer. Why Tom Brady, David Ortiz, Jimmy Fallon and other celebrities are getting sued over crypto. CNN Business. Published December 14, 2022. Retrieved from cnn.com/2022/12/14/tech/celebrity-crypto-lawsuits/index.html.
5. Von Hoffman, Esme. FTX Convinced Poor People Their Money Was Safe in Crypto. It wasn’t. Jacobin. Published January 5, 2023. Retrieved from https://jacobin.com/2023/01/ftx-cryptocurrency-bank-financial-precarity-sam-bankman-fried.
6. Weisman, Steve. The History of Ponzi Schemes Goes Deeper Than the Man Who Gave Them His Name. Time. Published August 12, 2020. Retrieved from https://time.com/5877434/first-ponzi-scheme/.
7. Lapin, Nicole. Expalining Crypto’s Volatility. Forbes. Published December 23, 2021. Retrieved from https://www.forbes.com/sites/nicolelapin/2021/12/23/explaining-cryptos-volatility/?sh=6c6e7ff57b54
8. Marino, Jonathan. A Nobel Prize winner just ripped into bitcoin, saying it ‘is likely to go to zero’ Yahoo!Finance. Published November 9, 2015. Retrieved from https://finance.yahoo.com/news/nobel-prize-winner-just-ripped-184030619.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAABuxTmZihT4v5jnDu5zgkht-jfY7VktBFBroQJg271ics058E-2OOjkVGyl8YMjj23oXcLzoEdo1sw6y_EQeuDjVDw7Oy7TN8UeB4aA2LkPaDCuqln1HGDMrP5J6elhOz3vIEqogiIQXmEeT2VGfGcXjRneZtnwnJFMxdhF6qoSh
9. This content is based on the views of Matson Money, Inc. This content is not to be considered investment advice and is not to be relied upon as the basis for entering into any transaction or advisory relationship or making any investment decision.
10. All of Matson Money’s advisory services are marketed almost exclusively by either Solicitors or Co-Advisors. Both Co-Advisors and Solicitors are independent contractors, not employees or agents of Matson.
Other financial organizations may analyze investments and take a different approach to investing than that of Matson Money. All investing involves risks and costs. No investment strategy (including asset allocation and diversification strategies) can ensure peace of mind, guarantee profit, or protect against loss.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
Three Factor Model
Fama, Eugene F. and Kenneth R. French. “The Cross-Section of Expected Stock Returns,” Journal of Finance, 47, June 1992.
The Nobel Memorial Prize in Economic Sciences, commonly referred to as the Nobel Prize in Economics, is an award for outstanding contributions to the field of economics, and generally regarded as the most prestigious award for that field.
Markowitz, Harry. “Portfolio Selection.” Journal of Finance. 1952.
Harry Max Markowitz is an American economist, and a recipient of the 1989 John von Neumann Theory Prize and the 1990 Nobel Memorial Prize in Economic Sciences. Markowitz is a professor of finance at the Rady School of Management at the University of California, San Diego.
Efficient Market Hypothesis, first explained by Dr. Eugene Fama in his 1965 doctoral thesis.
Eugene F. Fama, “Random Walks in Stock Market Prices,” Financial Analysts Journal, September/October 1965.
Eugene F. Fama, 2013 Nobel laureate in Economic Sciences; is widely recognized as the “father of modern finance.” His research is well known in both the academic and investment communities. He is strongly identified with research on markets, particularly the Efficient Market Hypothesis.