The rise of cryptocurrency, driven by the popularity of the first and largest crypto—Bitcoin—is one of the biggest stories in finance, investing, and mainstream media. Even the Super Bowl can’t escape the Crypto craze, with multiple advertisements airing during the big game.
In 2021, Pew Research found 86% of Americans have heard about cryptocurrency, 16% have personally invested in it, and males aged 18-29 trade cryptocurrency at a much higher rate.1
Nearly every day, I read articles, blogs, and tweets from financial experts either touting the revolutionary nature of these investments or calling it a fraud, a scam, or a massive bubble that will crush the casual investor. This morning I opened the Wall Street Journal to the headline “Getting Past the NFT Monkey Business” with the article describing $3 billion a month in NFT transactions on OpenSea, the eBay for crypto goods. Crypto’s cousin, non-fungible tokens (NFTs), joined the crypto party in 2020.
We need to address a few main questions regarding cryptocurrency and NFTs, especially as Christian investors.
Questions to Ask
First, what is cryptocurrency and how is it used?
Everyone seems to give a different explanation for Bitcoin (and other cryptocurrencies) in our economy. Satoshi Nakamoto (a pseudonym) created and deployed the first decentralized cryptocurrency, calling it Bitcoin. Bitcoin acts as a network-based digital currency that is exchanged exclusively electronically. To understand the decentralized nature of Bitcoin, we can compare it to the internet. No one person, organization, or government controls the internet. The open-source nature of the internet and Bitcoin provide opportunities for anyone to access and transact on the platforms.
In short, Bitcoin2 allows two parties to complete a financial transaction electronically and anonymously without disclosing any private information to third parties. While removing a “third-party” may save on transactional costs in the exchange, the potential for adverse consequences increases. A trusted third party lowers the risk of fraud and theft from bad actors. It provides valuable expertise in the financial system for both parties, leading to higher confidence in the exchange. Additionally, the anonymity in cryptocurrency opens the door to greater brokenness and societal harm with illegal transactions (drugs, weapons, human trafficking).
Let’s consider a second question: Is Bitcoin a good investment?
Before answering this question, I’ll explain what I view as an investment.
Investment requires taking a financial risk with the hope of future returns through dividends or capital gains. For stocks, companies pay a portion of their profits as dividends. In real estate, the cash flows from rents deliver income. Returns from capital gains come from the appreciation of the asset. Unlike investing, when all parties can gain wealth, gambling is a zero-sum game—simply a transfer of money from one party to another. Investing in Bitcoin, to me, seems comparable to gambling—hoping the price keeps going up until I sell.
“When we only invest thinking the asset with continue to rise in the future, the likelihood of a bubble (and subsequent pop) increases, and now we are gambling, not investing.”
Bitcoin pays no dividends. You can’t earn interest from Bitcoin. And it won’t pay a dividend or interest in the future. So, the only opportunity for positive investment returns would be if the price rises. When we only invest thinking the asset will continue to rise in the future, the likelihood of a bubble (and subsequent pop) increases, and now we are gambling, not investing.
Third, since Bitcoin is not viable as an investment asset, what about as a currency?
One of the critical components of money is its use as a means of payment. As a means for payment, Bitcoin fails to match the efficiency of traditional fiat currency. Further, Bitcoin lacks price stability, a foundational element of conventional money.
Fourth, is Bitcoin Gold 2.0—a better hedge against market downturns and inflation?
Historically, when investors become uneasy with the financial markets and downturns occur, investments shift to gold. Bitcoin supporters contend that it provides safety against market downturns because of its scarcity in recent months and years. However, recent research indicates that Bitcoin moves similarly (albeit more drastically) to the overall market and does not provide the same hedging benefits as gold.
Final question: Am I investing in Bitcoin because I believe it is an investment, or am I concerned about missing out on the “next big thing”?
The psychological aspect of investing plays a much more significant role than many experts or academics want to admit. Many investment decisions are based on either groupthink or the fear of missing out. Investments lacking intentionality, thoughtful research, and understanding drift into gambling.3 Far too often, I start to question, “Why do I want to jump into the next craze?” (Think GameStop of 2021). Of all the questions to ask yourself, this is the hardest to answer honestly.
When I invest in a company’s stock, I turn my money over to them, hoping they provide a product or service that benefits the economy. Stock purchases provide companies the resources to build plants, add jobs, produce innovative products, and solve new economic problems. Quality investments create wealth for investors, businesses, customers, and society, without losers. It’s not a zero-sum game. Investing in companies that advance the common good and advance the Kingdom of God through their products and services brings me great joy.
Let me explain using a couple of examples. If I purchase stock in Microsoft, I invest money in the company. Microsoft uses my investment to hire more employees and produce computer programs like Excel that give millions of people the tools to be more productive and successful in their careers and lives. Microsoft uses my investment (and those of millions of others) to generate profits, and in turn, I receive dividends and capital gains from their success. Second example. When I save money at my local bank in a deposit account or through a certificate of deposit, the bank uses my funds to offer home mortgages or car loans to customers. In this example, I earn interest on my deposits, the bank earns interest on their loan, and the borrower can purchase something they need, like a home or car. Again, all parties in this system win.
Often, we don’t view investing as an act of service, but it is when we practice intentionality in our investment decisions. When a Christian invests in companies that aspire to ethically innovate, create, manufacture, and provide excellent products and services that empower people and society to thrive, we live out a piece of our cultural mandate. Further, an intentional approach to investing stewards our God-given financial gifts.
“Often, we don’t view investing as an act of service, but it is when we practice intentionality in our investment decisions.”
God calls us to invest—with our money, time, and resources. Jesus gives the parable of the Talents, Joseph stores up grain in Egypt, and Psalms, Proverbs, and Ecclesiastes each talk about saving and investing. Scripture also speaks to intentionality, wisdom, and patience with investing. Proverbs 27:12 says, “the prudent see danger and take refuge, but the simple keep going and pay the penalty,” and Proverbs 21:5 says, “the plans of the diligent lead to profit as surely as haste leads to poverty.” The craze of Bitcoin and the headlines of massive gains test the diligence and patience of investors.
We want to experience the same “success” of those buying Bitcoin, but at what cost? Renowned investor Peter Lynch’s most famous piece of investing advice, “invest in what you know,” is a foundation of my investment approach and the primary reason I won’t invest in Bitcoin now. Despite reading countless papers and articles, I don’t understand enough about the long-term viability of bitcoin as a currency, store of money, or as an asset. If I’m to take the stewardship of my money seriously, I should understand my investments.
Although I’ve written strongly against investing in cryptocurrency, I understand the simplicity in society of utilizing Bitcoin as a digital currency and its role in our modern economy. I also contend that a Bitcoin holding investment may be acceptable for some investors. However, my investment approach and risk tolerance lead me to other investments. For now, given a choice between tangible assets that produce goods and services benefiting creation, and a potential currency bubble of Bitcoin, I’ll steer clear of the craze.
This article is part of our ongoing series: Living with Intentionality. Our lives are a series of decisions of how best to love others, care for our creation, seek good, prevent harm, and glorify God. We will highlight these articles where fellow believers make very intentional choices that can expand our imagination for what the Christian life—and the life of the mind—can accomplish.
Perrin, A. (2021, November 11,). 16% of Americans say they have ever invested in, traded or used cryptocurrency. Pew Research Center https://www.pewresearch.org/fact-tank/2021/11/11/16-of-americans-say-they-have-ever-invested-in-traded-or-used-cryptocurrency/ ↩
For simplicity and consistency, I lump all cryptocurrencies into Bitcoin for the rest of the article. ↩
For excellent discussion contrasting gambling and investing, check out Dr. John Visser’s work. https://inallthings.org/lotteries-and-gambling-vs-investing/?highlight=visser ↩
The author conflates Bitcoin and “cryptocurrency” in general, as if decentralized finance, which is “productive” by his own definition, does not exist.
He needs to ask why institutional investors, venture capital firms, and famous financial figures such as Mark Cuban and Kevin O’Leary and Elon Musk actively invest in and promote cryptocurrency. O’Leary has 20% of his capital, so he claims, in crypto!
Interesting how you can either take your savings account in the bank and get a whopping 0.5% return, or you can turn that money into stablecoins, deposit or farm with them, and get 4-8%. Is this illegitimate or criminal? Or is it a smarter investment than using a bank, depositing in a CD, etc.?
And regarding price stability, I have noticed that fiat currency has been rather unstable lately. As in, grocery prices going up 20% in a year or less!
Forewarning… I have always been cautious in concerns about Bitcoin and other cryptocurrencies, so my response does carry a predisposition. Despite this, I will gladly change my perspective if my understanding is wrong.
Prior to reading this article, I had shared the same sentiments with the author on the reality of Bitcoin being an incredibly risky investment vehicle. This past December I was out of town and speaking to an athletic training coach for a high school. He mentioned that he had bought into Ethereum a while ago, and now his holdings were worth around $500K. I asked him if he was passionate about the concept of a decentralized currency and if his incentive was anti-regulation or altruistic. He said it was purely altruistic. This isn’t the only person I have spoken to who has shared the same philosophy towards cryptocurrencies. History doesn’t repeat but it does rhyme. Prior to the 2008 Financial Crisis, it seemed that everyone’s distant cousins and family members were investing heavily in real estate, and real estate is an actual investment vehicle. It seems people are more enthusiastic about the potential to make large amounts of money instead of the actual mechanism of cryptocurrencies.
The author brought up spiritual aspects that I didn’t think of prior. I will share the link to a WSJ article about a Ukrainian researcher who recently unearthed chatlogs from a Russian-affiliated cybercriminals enterprise. This enterprise was named Trickbot, and utilized a Conti ransomware.
Here is a quote from the WSJ article about the chatroom (Trickbot).
“In a secret chat room run by a group of Russian-affiliated cybercriminals, a hacker expressed excitement about a plan to attack and disable more than 400 U.S. hospitals. “There will be panic,” the hacker wrote, in Russian.” This was during the high point of the Covid-19 pandemic, and the plan was to hold hospital computer systems hostage and to require bitcoin ransomware payments.
Proponents of cryptocurrencies will emphasize the importance of crypto being insulated from government/financial institution interference. I have family living in El Salvador, where the government had adopted Bitcoin. The president under the guise of bitcoin technology as a means of using public resources in a better-disguised manner for laundering money.
You mentioned that institutional investors have adopted Cryptocurrency, yet the reality is that many successful investment bankers are against its adoption. Jamie Dimon of JPMorgan Chase has elaborated his position for these three reasons.
A terrorist attack funded by bitcoin/crypto will lead to Washington clamping down on it in the name of national security.
Those investment firms that invest pensions/retirement savings into a highly volatile investment vehicle such as crypto/bitcoin will potentially lead to a lot of sweet old ladies losing their savings. Washington loves to embrace new technologies but once their constituents are harmed publically, they will reverse policy in order to save face.
Countries like to control their fiat currencies. The ability to know who, when, where, why, and how their currencies are being spent is imperative to conducting monetary policies.
The U.S. can just digitize the dollar and better implement programs for people and include expiration dates, enabling a stronger ability to control monetary policies.
Finally, you mentioned Elon Musk and Kevin O’Leary as being active investors in bitcoin. Elon Musk is worth $247 Billion dollars, and despite that not being liquid, he is at a level in which he can singlehandedly influence bitcoin/crypto towards his personal agenda.
An article by Vox charted the relationship between Elon Musk’s tweets and that of crypto prices. Inflation is reaching high levels, with inflation reaching 8.5% in March of 2022. Elon Musk did not influence that rise by making a tweet. Elon Musk did influence bitcoin by -5% singlehandedly with a tweet he made on June 3, 2021. When one individual has the ability to wipe out 5% of a “currency’s” value by making a tweet, it is reflective of the speculative/high-risk reality of Bitcoin’s practicality.
The author of this article provides non-emotional reasonings for why Bitcoin/Crypto-currencies are more detrimental than advantageous to society. Including a secular perspective of the legality of cryptocurrencies would still acknowledge the shortcomings of this emerging technology.
Thanks, Jesse, for untangling some of the confusion surrounding cryptocurrencies. I appreciate your thoughtful approach.