Special Edition: Ric’s letter to Scientific American
To the editors:
As a long-time subscriber, I am continually impressed by the depth of analysis and robust perspective you provide each month. Your strong analytics and objectivity, free of bias, provide sound reasoning and clear explanations of every topic you approach. Thank you for your excellent work.
Unfortunately, all of that was missing in your May 1 editorial, “Cryptocurrencies and NFTs Are a Buyer Beware Market.” The article was filled with inaccurate, unsubstantiated innuendo, using inflammatory language that clearly reflected an obvious lack of knowledge about the topic. The piece failed to measure up to your editorial standards, and consequently, you’ve done your readers a major disservice.
I was ranked three times as the nation’s #1 Independent Financial Advisor by Barron’s, and I’m widely regarded as one of the most influential thought leaders in the financial services field, having founded the largest financial planning firm in the nation, now managing $300 billion for 1.4 million Americans nationwide. Four years ago, I founded the Digital Assets Council of Financial Professionals to educate advisors about this new asset class. DACFP offers the Certificate in Blockchain and Digital Assets, an online 11-module course taught by a world-class faculty. So, I have some basis for raising concerns about your editorial’s many factual inaccuracies.
You wrote, for example, that “16 percent of Americans claimed to have speculated in cryptocurrencies.” That statistic was provided by the Pew Foundation in November, 2021 – and is outdated. The current figure is 21%, as shown by a March 2022 survey by CNBC (https://www.cnbc.com/2022/03/31/cryptocurrency-news-21percent-of-adults-have-traded-or-used-crypto-nbc-poll-shows.html). That’s a 30 percent increase in four months, demonstrating the dangers of relying on out- dated information in this fast-growing market.
More importantly, these Americans are not “speculating.” They are “investing” – typically as part of a diversified portfolio. Describing them as speculators brands them in an unjustified and inaccurate manner.
It is also incorrect to call digital assets “unregulated.” In fact, there are extensive regulations in place – from the SEC, FINRA, CFTC, Treasury Department, IRS, Federal Reserve and FinCen. Already, extensive tax guidance is provided by the IRS, and crypto funds and exchanges are required to adhere to the same KYC/AML rules (Know Your Customer and Anti-Money Laundering) as brokerage firms More regulation is needed, for sure – and the crypto community has been leading the call for exactly that. In the meantime, though, it is irresponsible to claim that no regulations exist.
Your editorial was also incorrect to broadly claim that “digital resources guzzle energy at a prodigious rate, contributing to climate change.” First, virtually everything humans do contributes to climate change – rendering this statement nothing more than claptrap. Second, only certain digital assets, such as bitcoin, consume significant amounts of energy, through the Proof of Work protocol. However, a very large portion of the marketplace uses the Proof of Stake protocol instead, which requires 99% less energy. (Ethereum, the second largest digital asset, is moving to PoC this year.) Most importantly, as you know but didn’t acknowledge in your editorial, it’s not energy usage that matters, but C02 emissions. Already, more than 60 percent of bitcoin’s energy is green – wind, solar and water – and that figure is climbing fast. This makes sense, since energy is the largest expense bitcoin miners incur; they have a big incentive to lower their energy bills, and they are thus leaders in developing alternative energy sources to help protect our planet. The Crypto Climate Accord, inspired by the Paris Climate Accord, was signed by more than 250 companies in the crypto community.
Your repeated reference to crypto being “a highly unregulated industry in its Wild West era” is woefully out of date – and your mention of President Biden’s executive order on crypto was completely inaccurate. The order does not tell “federal agencies to study the problem because the crypto market lacks the consumer protections that stabilize this type of investment and deter its use by criminals.” The truth is that the order brings to the topic the full force of the federal government, to develop and support innovations pertaining to this rapidly growing technology. Bitcoin’s price rose 10 percent on the news – demonstrating that investors regard the Executive Order as a strong endorsement. The White House isn’t alone; Treasury Secretary Janet Yellen – who a year ago falsely said bitcoin was used mostly for illegal activity, now calls blockchain “transformative;” Sen. Elizabeth Warren, who a year ago said bitcoin is like “spinning straw into gold,” is now advocating for a Central Bank Digital Currency; the Federal Reserve now has its first Chief Innovation Officer; 39 members of Congress are part of the Congressional Blockchain Caucus; and states nationwide a racing to pass legislation that welcomes the crypto community, because of the jobs these companies provide. (In a demonstration of support, the mayors of Miami and New York have both taken their pay in bitcoin.) You failed to mention any of this.
Your statement that “cryptocurrencies…cannot be guaranteed by a trusted authority” shows your lack of knowledge of the topic. The entire point of blockchain technology is that trust is not required. It moves us from the trust economy that our world has used for centuries to a cryptographically authenticated economy that doesn’t require trust. By eliminating trust, we eliminate the intermediaries (middlemen) that sit between buyers and sellers. When buying a house, for example, you can skip the title settlement company, title search and title insurance, saving months of delay and thousands of dollars in unnecessary costs. Blockchain technology allows businesses worldwide to operate faster, cheaper, safer, and with greater transparency – but instead of celebrating these revolutionary improvements, you lament that “trusted authority” isn’t “guaranteed” by blockchain technology. That’s like lamenting the fact that you can’t hitch a horse to your SUV.
Your editorial also inaccurately and incompletely cites bitcoin’s price performance. You call it “speculation [which] can be extremely volatile” and note that bitcoin’s price “once dropped by 30 percent in a single day.” Really? On April 20, Netflix stock fell 35 percent in a single day – but I don’t see you calling Netflix or the stock market a “speculation.” Instead of looking at a single strikeout by a batter in a single inning of a single game of baseball, you’d be of far greater value to your readers if noted that this batter was Ty Cobb, who produced the highest lifetime batting average in baseball history. Likewise, you should have noted that over bitcoin’s entire 12-year history, it has proven itself to be the best-performing asset class in history, with a 40 million percent increase since inception. It is also the best-performing asset class in the past 1-, 3-, 5-, and 10-year history, creating far more wealth for investors than any other investment. And, due to the continuing advances in this asset class, many are calling for a continuation of accelerated growth. (Fidelity, for example, says bitcoin will reach $1 million in price.)
You devoted a paragraph to illicit activity involving bitcoin, referring to ransomware hackers and scammers who stole $14 billion worth of crypto in 2021. You didn’t add that only 0.15 percent of crypto transactions are involved in illicit activity, compared to 2 percent of cash. Nor did you mention that law enforcement agencies love bitcoin, because digital money leaves a digital footprint. That’s why the FBI was able to recover, in just two weeks, the $6 million in bitcoin that Colonial Pipeline gave hackers in a ransomware attack. The IRS says converting to digital money will eliminate tax evasion, while the Justice Department says it will crush terrorist financing and drug cartels.
Finally, your claim that bitcoin is “like a pyramid scheme” has no basis in fact and is not alleged by any consumer protection organization or law enforcement agency, all of whom aggressively prosecute and shut down criminal activity.
The truth is that crypto represents the most important investment opportunity of a generation – an opportunity for wealth creation not seen since the invention of the internet. Your editorial made inaccurate, incorrect and misleading statements to justify your negative viewpoint. Negative views are fine; false “facts” to support those views are not. Your magazine frequently criticizes others who use false information to support their biases, and it is unfortunate that you have done the same in this case.
There is one point on which we can agree: investors must get educated about this new asset class before they invest, so they can make informed decisions that are in their best interest. Unfortunately, your editorial does not assist their efforts.
Please publish this letter as a counterpoint to your editorial.
#1 New York Times bestselling author of The Truth About Crypto