Beware the crypto gurus

Garry White warns against the snake-oil salesmen of currency

Experts are excellent. Specialising in a subject created professions and professionalism, giving birth to the middle classes, the foundation of Britain’s wealth.

Despite claims to the contrary, Britons are not dismissive of those with expertise. It is so-called (and often self-appointed) gurus you should beware.

One area with more than its fair share of gurus – and where people have lost significant amounts of money - is cryptocurrency. With their voices amplified through social-media platforms, the cryptoevangelists talked a good story about the future of money.

Fans of cryptocurrencies want to take the government out of money. Many people – arguably justifiably given their recent track record –don’t trust central banks, believing these institutions will devalue their wealth by manipulating the value of money to suit the whims of the state.

This subject can inflame passions and has been a stomping ground for the self-appointed gurus to create many “true believers”.

Digital evangelists created a “fear of missing out”, convincing many that digital currencies were the future of money and if you weren’t on the bandwagon, you would be a long-term loser.

Unfortunately, for many, the opposite has proved the case.

The most-recent high-profile implosion has been cryptocurrency exchange FTX, a centralised cryptocurrency exchange specialising in derivatives and leveraged products. Its founder and CEO, Sam Bankman-Fried was cited as “the next Warren Buffett” by Fortune magazine. Venture capital firm Sequoia even hailed him as a “future trillionaire”.

But FTX filed for bankruptcy protection in the US in November last year. American prosecutors have announced an eight-point fraud indictment against Mr BankmanFried, alleging he defrauded customers and investors of FTX and lenders to FTX-affiliated hedge fund Alameda Research.

Damian Williams, Attorney for the Southern District of New York, has claimed it was one of the “biggest frauds in financial history”.

Regulators are looking into whether FTX used customer funds to prop up Alameda Research, a trading company founded and almost entirely owned by Mr Bankman-Fried. Mr Bankman-Fried denies all charges.

Clearly, Bitcoin and other such tokens aren’t money at all. One of the most important characteristics of on Mr Musk’s purchase announcement it’s likely you lost a lot of money. The Bitcoin price currently sits at about $20,000, having peaked at nearly $50,000. money is that it acts as a store of value but the volatility of cryptocurrency prices means they do not meet that definition. It is not money; it is not an investment – it is a gamble.

It’s not just the murky world of crypto assets where gurus operate. One of the most brazen frauds over the last few years was Theranos, a consumer healthcare technology start-up. Set up by Elizabeth Holmes when she was 19, and despite never being listed on a stock exchange, it was once valued at $10bn. Its leadership claimed it would revolutionise the blood-testing industry. However, the technological breakthrough that chief executive Ms Holmes and former president Ramesh Balwani was selling to investors was never demonstrated.

It was a deceit. But it allowed the pair to talk up Theranos’s valuation to professional investors. It’s shocking that Wall Street professionals bought her story but it demonstrates how easily frauds can develop and how even seasoned investors can be bamboozled.

One oft-cited guru that has come to regret his evangelism is billionaire Elon Musk. At the start of February, a US regulatory filing revealed his electric-vehicle company Tesla made a $140m net loss last year on Bitcoin.

Under the direction of chief executive Mr Musk, Tesla put $1.5bn into Bitcoin in early 2021 and said it would accept the coins as payment for its vehicles. Widely broadcast on Twitter, this helped send Bitcoin’s value up by a quarter to a then record of about $48,000.

But shareholder pressure caused Mr Musk to U-turn in a matter of weeks. Tesla has since sold most of its Bitcoin holdings, with about $184m left. If you piled into Bitcoin

Ms Holmes was found guilty of wire fraud and conspiring to commit wire fraud in January 2022. She is serving a sentence of 11 years and three months at a minimum-security prison camp in Texas.

A new cadre of “finfluencers” are very internet savvy, using YouTube, Instagram and TikTok to reach a wide audience. Unregulated personalities offer shallow quick takes without fully setting out the dangers of the investments they are promoting.

The Financial Conduct Authority has warned social media sites that it may act if they continue to promote risky, and sometimes fraudulent, investments.

It believes DIY investors are taking big financial risks by investing in high-risk products promoted by a group of finfluencers with no skills or experience.

Beware the gurus: they are often merely purveyors of snake oil.