Stop saying "They shouldn't have invested more than they could afford to lose"

by Molly White on Friday, July 22, 2022
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A CEO of a major crypto lending platform repeated on video each week that “banks are not your friend” and that there was no risk to the funds stored with his company.¹

The New York Times ran the headline, “They Made Millions on Luna, Solana and Polygon: Crypto’s Boom Beyond Bitcoin”, describing the “newly wealthy” crypto speculators.² “Young investors are abandoning stocks for crypto — and making millions”, said the New York Post.³ CNBC profiled a woman who “went from living paycheck to paycheck to making over $109,000 selling NFTs”.⁴

Spike Lee directed and starred in a commercial for crypto ATMs. “Our currency is not current. Old money, as rich as it looks, is flat out broke. Don’t believe me? I got receipts. They call it green, there’s only white. Where’s the women? The black folks? And the people of color? … Old money is not going to pick us up. It pushes us down, exploits, systematically oppresses. But new money? New money is positive, inclusive, fluid, strong, culturally rich. … The digital rebellion is here. Old money is out! New money is in.”⁵ Binance ads at bus stops in London read “Money is evolving; it’s time to adapt.”⁶

Crypto evangelists everywhere talked up how crypto would “democratize finance”: providing the same financial opportunities that were only available to the very wealthy or institutional investors. “Crypto is enabling everyone to do what billionaires are able to do at a smaller scale,” read a popular post on cryptocurrency Reddit: borrow money to accumulate wealth.⁷ Others railed against U.S. monetary policy and painfully high inflation: “USA inflation is currently 6.8% and is highest since 1982. Almost 55% of all ever existing dollars were printed in last 3 years. Can we finally stop pretending fiat is in any way safer than crypto?”⁸

A crypto influencer on TikTok with 1.5 million followers produced a video with text overlaid saying, “Only watch if you’re 14–21 years old”. He spoke emphatically into the camera: “Our generation, we were told since we were kids by our parents that ‘you gotta put your money in the bank. You gotta save it. Put it in stocks. Mutual funds.’ But what our parents don’t realize is that’s what worked for them and their generation. Our generation is going fully digital.” He predicted that “within 10 years the government is going to convert from fiat currency to cryptocurrency” and urged his teen audience: “Please don’t sleep on this. Now you know the truth.”⁹ He has a litany of other crypto-focused videos with titles like “Broke to millionaire” and “Make passive income with only $200”.

Michael Saylor, one of the best-known faces in Bitcoin, advised, “Take all your money, buy Bitcoin. Then take all your time, figure out how to borrow more money to buy more Bitcoin.” Sell your things to buy Bitcoin, he went on. Mortgage your house to buy Bitcoin. Finance your family business, put the proceeds into Bitcoin.¹⁰

Some dove in headfirst, but some tried to find what appeared to them to be the least risky cryptocurrencies and platforms.

Some put their money into Bitcoin—it had been around the longest, and after all, they were told that “on average, Bitcoin goes up 200% per year”.⁹ Others went with stablecoin-based lending protocols like the Anchor project built on the Terra protocol, that promised a whopping 19–20% APY just for keeping TerraUSD stablecoins (tokens that were meant to be volatility-free) with the project for a fixed period. Some used firms like Stablegains, which promised to deliver 15% returns while mitigating the risk of potential stablecoin instability by diversifying funds across multiple coins.¹¹ Others took lower returns by putting their crypto in projects like Celsius, in exchange for promises that the platform was less risky than other crypto projects, and even less risky than traditional banks.¹²

Now, Bitcoin has cratered 67% since its November 2021 peak.¹³ The Anchor protocol collapsed right along with the stablecoin TerraUSD, which dropped below its $1 peg in early May and could not recover.¹⁴ Stablegains lost 99% of their users’ holdings—$44 million altogether—because they’d put them all into TerraUSD rather than diversifying them as they’d promised.¹⁵ After consistently reassuring customers that their funds were safe, Celsius suddenly stopped allowing withdrawals from their platform in June, and filed for Chapter 11 bankruptcy a month later.¹⁶ They’re not the only ones—Vauld and Voyager Digital both began bankruptcy proceedings in July, and an even larger number of crypto firms have indefinitely suspended or severely limited customer withdrawals.¹⁷

Some investors are distraught. Suicide helplines were pinned to the subreddits dedicated to various collapsing projects or companies as their denizens made despairing posts. Users shared stories of how badly they were impacted. “Now I don’t even have enough money to pay my rent this month. I’m fucking ruined.”¹⁸ “I cannot pay the bank. I will lose my home soon. I’ll become homeless.”¹⁹ Customer after customer sent letters to the judge presiding over Celsius’s bankruptcy proceedings, pleading for him to consider their circumstances. “That’s the money I’m planning to give to my daughter when I pass away”. “We will need to delay our retirement plans and continue to be in the work force”. “This is an EMERGENCY situation, simply to keep a roof over my family and food on their table”.²⁰

And along came the familiar refrain from others in the crypto community: “They should have followed the number one rule in crypto: don’t invest what you cant afford to lose.”

In 2021, 49% of Americans characterized their level of debt as unmanageable. 37% worried about their ability to meet a $100 emergency expense, and 43% worried about a $500 emergency. One in three did not have enough money to pay their bills in full and on time.²¹ Increasing numbers of people are working multiple jobs.²² Those in the millenial generation have “almost no chance” of being able to afford a house.²³ Looking beyond the boundaries of the U.S., people face dire financial straits for these reasons and many more.

It is undeniable that there are people who make risky financial decisions based on greed.

However, enormous numbers of people are financially desperate. Even those with steady employment often don’t see the kinds of salaries in their futures that would deliver them to financial freedom, nor do they see hope in the comparatively modest returns of traditional (and non-Ponzoid) financial investments. And crypto has been sold to them as the solution.

Crypto is being described as the future of finance, the “new” and “evolved” form of money, the ticket to “unlocking generational wealth” that is no longer available to so many people, and the way to accumulate the most money in a tough economy with high inflation and stagnant wages. It’s the way that, according to the headlines, people are earning huge returns and escaping their dire circumstances. It’s still early, proponents say, and you wouldn’t want to get left behind like all of those people who dismissed Bitcoin in the early 2010s or Ethereum before its 2021 boom, would you? Crypto is supposedly the way for the little guy, the non-millionaire, to have access to all those lucrative investment opportunities enjoyed by the rich folks and Wall Street suits. And those who don’t engage with it? Well, they can “have fun staying poor”. They’re “not going to make it”.

So “don’t invest more than you can afford to lose” is tough advice to swallow for the large group of people who are seeing the gleaming promises around crypto, but who also don’t have money they can afford to lose. They can take a big chance in hopes of the bright future they’ve been promised by an industry with a huge marketing budget, or they can risk missing out and staying in an already untenable situation.

It’s apparently easy for some people to castigate those who’ve just lost everything by repeating this refrain, in the same way it seems to be easy for some people to only start pointing out the “obvious Ponzi” or “clear scam” projects only after everything crumbles. And it’s tempting, to those steeped in crypto, because it serves to place the blame with the individual, rather than with the platform, the particular segment of crypto that failed, or—God forbid—with crypto and its culture as a whole.

Doing this only excuses the messaging that we have been seeing everywhere we look—in crypto media but also in supposedly reputable news publications, in advertising, on social media and from influencers, and certainly from crypto companies themselves—that crypto is an “investment”, or the future of money, or the democratized version of finance that will finally give the average person a fair shake.

Notes

Disclosures for my work and writing pertaining to cryptocurrencies and web3 can be found here.