Why I Don’t Invest in Crypto & Never Will

The following is not financial advice. Please consult a financial professional before making investment decisions.

The basic issues

The value of anything

There are two true values for everything: what people are willing to pay for an asset and its intrinsic value. The former is easy to understand, but the latter is more complicated. Intrinsic value is the discounted value of an asset’s future cash flows. Said more simply, take the future cash an asset will generate from profits or interest over its lifetime and take into account that money in the far future is worth less than the present and near future through the present value formula.

All bubbles occur because what people are willing to pay for an asset becomes disconnected from the cash it generates. The most extreme bubbles such as the famous Dutch Tulip Mania occur when an “asset” has little to no intrinsic value, its value is solely derived from someone’s ability to sell it at a higher price.  

What crypto doesn’t do

Crypto is a modern tulip, but not as beautiful. Like a tulip it doesn’t pay interest or generate cashflow. You can stake your crypto and get more of it, but the aggregate dollars available to the average stake is contingent on a higher dollar value for the whole cryptocurrency in question. Taking an extreme example, a staked cryptocurrency with an implied 50% annual yield should have a decline in the per token value of atleast 50%, assuming no additional issuance. Therefore you may end up with 2 of XYZ coin when you started with 1, but the value of 2 will now approximate the value of 1.

No ability to price

If crypto doesn’t generate income in any real way, how do you value a cryptocurrency? Why is a TRUMP coin worth around $6 at the time of this writing while good old Fart Coin is only worth 32 cents (market cap of $320m!)?  Ask a room of crypto enthusiasts and you will get a dozen answers. People have come up with various methodologies to value cryptocurrency such as what Bitcoin would be if it was a medium of exchange and was valued on par with XYZ currency. However by and large all of these valuation methodologies are little better than throwing darts at a wall with values. In the absence of cashflows, interest, or some other north star of value, crypto values are all voting machines in the short run and zeroes in the long run.

Crypto is not money

There are three issues that will stop the adoption of crypto as a serious competitor to “fiat” money:

Governments don’t like it

If a cryptocurrency becomes too successful and money like, it will start to impinge on sovereign’s ability to inflate their own money supply, impact banks’ fractional reserves, or control the flow of capital, a major issue that any serious government will eventually clamp down on. China has already banned crypto largely for the last reason as crypto was facilitating capital flight that would have eventually caused serious issues for the Chinese economy.

Volatility matters

Currencies also fluctuate, but by and large the world’s most important fiat currencies have a fraction of the volatility inherent in cryptocurrencies. If you are a merchant that gets a dollar, even if inflation returns to low double digits a year, you are still guaranteed to retain 99% of your purchasing power by the time you deposit the cash to your bank and use it as a form of payment. Even the largest cryptocurrencies have daily fluctuations that can seriously erode the value of the payment just received, making it necessary to convert it to fiat cash as quickly as possible.

No barriers to entry

The cost of creating competing cryptos is near zero. Although individual cryptocurrencies have a cost in terms of electricity consumption and developer hours and like Bitcoin may have a maximum number of coins, the cost of incubating a competing coin is low enough that there are now thousands of coins. I cannot compete with the US dollar in any meaningful way, but I can very much compete with Fart Coin (BURP coin already exists).

Stable Coins

The ultimate path for stable coins differs depending on the type of stable coins being discussed:

Fiat collateralized

Fiat stable coins are meant to mirror the value of a “fiat” currency usually the US Dollar. They are either allegedly backed by an equivalent amount of currency or functional equivalent securities such as treasuries. The Genius Act signed in 2025 requires auditing and 1:1 ratio of assets to reserves, however offshore stable coins are not subject to the same requirements. They also pay the functional equivalent of interest that varies based on the exchange where you hold it which tends to be in line with or a little higher than the return on the best high yield bank accounts.

Fiat stable coins that are larger and better capitalized with audited balance sheets such as USDC will likely survive as they have some utility as a temporary store of value that is fairly portable across borders at a low cost. However, there will likely only be 2-3 major coins that attract the majority of the assets as scale will create network effects that cause a few coins to be adopted across a large number of platforms. Some of the smaller stable coins will turn out to be under collateralized frauds. There is also a risk that banks who are not fond of competitors which reduce their access to low cost deposits and who can rightly claim that they face a more onerous regulatory burden, may at some point in the future lobby to eliminate fiat stable coins.

Commodity and crypto collateralized

Commodity and crypto collateralized stable coins are similar to fiat collateralized stable coins, but instead of treasuries and equivalent securities backing them, they are backed by a commodity such as gold or a basket of crypto currencies. The commodity stable coins have the obvious risk of the underlying commodity declining in value. Crypto stable coins that are backed by crypto currencies use a variety of mechanisms to maintain the stability of the coin, however given the volatility of the underlying assets, I would assign a low probability to their underlying values being stable during a true risk off scenario. When the prices of the crypto underlying the coin fall significantly, the value of the stable coin will also drop proportionately.

Algorithmic

There are also algorithmic stable coins such as Tron’s USDD. Algorithmic coins are famously unstable despite their name, for example TerraUSD now trades at a fraction of a penny when it could not maintain its peg. These coins are very susceptible to the crypto equivalent of a bank run. In a risk off scenario retaining a peg against the fiat currency becomes untenable as everyone races to sell their holdings creating a self reinforcing downward spiral in prices.

Why Crypto is having its moment and why it won’t last

The persistence of risk on behavior as a result of a bubble in AI related companies, coupled with more than a decade of quantitative easing, the misguided greenlight the SEC gave to crypto ETFs, and the emergence of a US administration that is highly supportive of crypto have all led to a rally in crypto assets.

None of these phenomena are sustainable. AI will be extremely important and result in new innovations, but the present valuations for AI companies embed too much growth. The rise of ETFs creates new pools of capital in the short run but also creates more mechanisms for shorts and theoretically more liquid markets for people to dump crypto when winter comes. The Trump administration will not last forever and when it becomes clear that unlike the stock and bond markets which are positive sum games for the average participant as they have positive returns over the long run, crypto is a zero-sum game. The millions of losers from crypto and their lack of any truly useful function will result in more political pressure for a ban or stricter regulation of crypto in the future. Nothing gets Congress to act faster than a lot of rich people losing money.

Crypto as a gold proxy

The only cryptocurrencies that are likely to remain as investable assets are Bitcoin and one or two other major cryptocurrencies such as Ethereum. Which one will be the silver to Bitcoin or some other cryptos gold? I have no clue and neither does anyone else, it will only be clear in hindsight. Bitcoin like gold is viewed as an asset that can store a significant amount of value in a highly portable form that cannot be inflated away and can be hidden from governments. It is possible that Bitcoin has become like gold in the minds of humanity and now like gold has a value that is disconnected from its practical value. There can only be one or two crypto currencies that fulfill this function. Also like the US government did with gold under FDR and China has already done with crypto, governments can ban Bitcoin because it has all of gold’s qualities. 

Where crypto is going

There can be a silver to Bitcoin’s gold, but the other 20k+ cryptocurrencies (there is no good source on this) are highly likely to be worth zero in the long-term.