Smart About Money: Thoughts on Crypto

The Wall Street Journal recently reported on the “trial by fire” of Mike Novogratz, a Wall Street “star” who has been one of the biggest promoters of cryptocurrencies and, as the Journal said, “a cult figure for thousands of amateur investors who followed his appearances on television, social media and the conference circuit.”

Nick Maffeo

Mr. Novogratz has apparently had a number of ups and downs in his Wall Street career, some huge. In fact, his company, Galaxy Digital Holdings Ltd., recently saw its holdings in the Luna cryptocurrency lose 99 percent of its value in three days.

That’s quite a swing.

Actor Matt Damon has been starring in a cryptocurrency commercial in which he says with great assurance that, “Fortune favors the brave.”

Now that cryptocurrencies are in almost total collapse, Damon is coming in for a lot of criticism for encouraging people to invest in them. So is Tom Brady, who has also done cryptocurrency advertising.

But Damon was a paid pitchman in that commercial. He has never claimed to be an investment advisor. And even if Brady personally believes in cryptocurrency 100 percent, does that mean a highly volatile and hard-to-evaluate investment like cryptocurrencies is right for other people?

Probably it’s best to say that the idea of investing in anything based on sales pitches from “cult figures” —  from Wall Street, Hollywood, sports or anyplace — is to be approached with the greatest caution. Especially when there are heavy doses of FOMO (fear of missing out) and implied promises of getting rich. High-risk, high-volatility investments are only for money an individual can absolutely comfortably afford to lose 100 percent. Because that happens sometimes.

The Wall Street Journal says that “largely unregulated financial machinations” like cryptocurrencies and Web 3 startups are “just a new way for the rich and powerful to siphon money from less wealthy and sophisticated investors.”

All too often, that seems to be the case. One investor tweeted Mike Novogratz asking, “Do you feel regret and shame shilling Luna to small retail investors who lost their life savings in it?” Another, who quit his job based on his investment in another recommended cryptocurrency, says he’s “back to square one, polishing his resume and looking for a job.”

Novogratz says the cryptocurrency crash is a “good reminder that not everything you do works out.” He adds that he always said, “Don’t put too many eggs in one basket.”

But then Novogratz is a longtime Wall Street pro. He fully understood and accepted the risks he was taking. He says he took profits in Luna along the way.

Does “fortune favor the brave,” as Matt Damon says in that cryptocurrency commercial? Or does fortune favor investors and savers who feel strongly that fundamentals matter — people who know that jumping on the “chasing riches” bandwagon in the heat of a moment is not a prudent strategy for anything.

Maybe fortune favors the prudent — people who are comfortable with their own risk tolerance and willing to take calculated risks for a comfortable life without ever putting all their eggs in one basket. Because as we’ve all seen lately, things can change significantly, quickly and unexpectedly.

It’s okay to have a low tolerance for high risk. As a man named Tim Denning recently wrote in The Startup, “Who said we have to be filthy rich to be happy anyway?” Good question.

Nick Maffeo is the President & CEO of Canton Co-operative Bank in Canton. Have a question? Email to submissions@cantoncitizen.com.

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Posted by Nick Maffeo on Aug 12 2022. Filed under Opinion, Smart About Money. Both comments and pings are currently closed.