59 lines
5.6 KiB
Markdown
59 lines
5.6 KiB
Markdown
---
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title: Crypto assets are predatory investments
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description: Evaluating the claim that crypto assets are predatory investments
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category:
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- claim: y
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- featured: y
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- interview: n
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- deepdive: n
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claim:
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- evaluation: YY
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- confidence: HH
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---
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# Steel man
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Crypto assets are a form of predatory financial product. [Asymmetric information](../concepts/asymmetric-information.md) within crypto markets privileges an [economic cartel](../concepts/cartel.md) who can manipulate crypto assets to extract wealth from retail investors.
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# Evidence of claim being made
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Livni, Ephrat. ‘As Crypto Tanks, Tech Veterans Question Blockchain’s Promise of Economic Salvation’. The New York Times, 15 June 2022, sec. Business. https://www.nytimes.com/2022/06/15/business/dealbook-dc-cryptocurrency-task-force.html.
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Meyer, David. ‘“Extremely Risky” and “Inherently Predatory”: Wikipedia Organization Decides to Stop Accepting Crypto Donations’, 2 May 2022. https://finance.yahoo.com/news/extremely-risky-inherently-predatory-wikipedia-110040373.html.
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White, Molly quoted in De Vynck, Gerrit. ‘First She Documented the Alt-Right. Now She’s Coming for Crypto.’ Washington Post. Accessed 21 September 2022. https://www.washingtonpost.com/technology/2022/05/29/molly-white-crypto/.
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> “Most of my disdain is reserved for the big players who are marketing this to a mainstream audience as though it’s an investment, often promising to be a ticket out of a really tough financial spot for people who don’t have many options,” White said. “It’s very predatory.”
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# Evaluation: True (high confidence)
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Crypto asset [market making](../concepts/market-maker.md) is subject to extreme forms of [market manipulation](../concepts/market-manipulation.md) not found in other regulated markets. The [price formation](../concepts/price-formation.md) of crypto assets is untethered to any [fundamental value](../concepts/fundamental-value.md) and instead depends purely on the [greater fool theory](../concepts/greater-fool-theory.md).
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The price setting by crypto exchanges and [order book](../concepts/order-book.md) design admits extreme forms of [asymmetric information](../concepts/asymmetric-information.md) which privileges an [economic cartel](../concepts/cartel.md) who can manipulate crypto assets to extract wealth from public from unfair market making.
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The base economics of crypto assets make them [negative sum](is-negative-sum.md) which guarantees the amount of loses in the asset class exceed the gains.
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Crypto assets are thus a form of predatory finance with negative [expected-return](../concepts/expected-return.md) much like [gambling](../concepts/gambling.md) in a rigged casino.
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## References
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1. Shri T Rabi Sankar. n.d. ‘Cryptocurrencies – An Assessment’. Reserve Bank of India. Accessed 2 March 2022. https://rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=1196.
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1. ‘Bitcoin Pyramid Schemes Wreak Havoc on Brazil’s “New Egypt”’. 2022. AP NEWS. 22 January 2022. https://apnews.com/article/cryptocurrency-technology-business-brazil-bitcoin-2dc801e5e3aa477ce7983d84dc8a64bb.
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1. Corbet, Shaen. 2021. Understanding Cryptocurrency Fraud: The Challenges and Headwinds to Regulate Digital Currencies. Vol. 2. Walter de Gruyter GmbH & Co KG.
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1. Diehl, Stephen. 2021. ‘On Unintentional Scams’. 23 July 2021. https://www.stephendiehl.com/blog/crypto-scams.html.
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1. Griffin, John M, and Amin Shams. 2020. ‘Is Bitcoin Really Untethered?’ The Journal of Finance 75 (4): 1913–64.
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1. Roubini, Nouriel. 2019. ‘The Great Crypto Heist’. Project Syndicate 16. https://www.project-syndicate.org/commentary/cryptocurrency-exchanges-are-financial-scams-by-nouriel-roubini-2019-07.
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1. Tozze, Arianna, Josh Kamps, Eray Arda Akartuna, Toby Davies, Florian Hetzel, and Shane D. Johnson. 2021. ‘Cryptocurrencies and Future Crime’. Crime Science 11 (1): 4. https://doi.org/10.1186/s40163-021-00163-8.
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1. Xia, Pengcheng, Haoyu Wang, Xiapu Luo, Lei Wu, Yajin Zhou, Guangdong Bai, Guoai Xu, Gang Huang, and Xuanzhe Liu. 2020. ‘Don’t Fish in Troubled Waters! Characterizing Coronavirus-Themed Cryptocurrency Scams’. ArXiv Preprint ArXiv:2007.13639.
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1. Dhawan, Anirudh, and Tālis J Putniņš. 2020. ‘A New Wolf in Town? Pump-and-Dump Manipulation in Cryptocurrency Markets’. Pump-and-Dump Manipulation in Cryptocurrency Markets (August 10, 2020).
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1. Hamrick, JT, Farhang Rouhi, Arghya Mukherjee, Amir Feder, Neil Gandal, Tyler Moore, and Marie Vasek. 2018a. ‘An Examination of the Cryptocurrency Pump and Dump Ecosystem’. http://ssrn.com/paper=3303365.
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1. ———. 2018b. ‘The Economics of Cryptocurrency Pump and Dump Schemes’.
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1. Kamps, Josh, and Bennett Kleinberg. 2018. ‘To the Moon: Defining and Detecting Cryptocurrency Pump-and-Dumps’. Crime Science 7 (1): 18.
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1. Li, Tao, Donghwa Shin, and Baolian Wang. 2019. ‘Cryptocurrency Pump-and-Dump Schemes’. Available at SSRN 3267041.
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1. Xu, Jiahua, and Benjamin Livshits. 2019. ‘The Anatomy of a Cryptocurrency Pump-and-Dump Scheme’. In 28th USENIX Security Symposium, 1609–25.
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1. Krugman, Paul. 2013. ‘Bitcoin Is Evil’. Paul Krugman Blog (blog). 28 December 2013. https://krugman.blogs.nytimes.com/2013/12/28/bitcoin-is-evil/.
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1. ———. 2018a. ‘Bitcoin Is Basically a Ponzi Scheme’. The Seattle Times 30.
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———. 2018b. ‘Transaction Costs and Tethers: Why I’m a Crypto Skeptic’. The New York Times 21.
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1. ———. 2021a. ‘Technobabble, Libertarian Derp and Bitcoin’. The New York Times 21.
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1. ———. 2021b. ‘The Brutal Truth About Bitcoin’. The New York Times 21.
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1. Taleb, Nassim Nicholas. 2021. ‘Bitcoin, Currencies, and Fragility’. ArXiv:2106.14204 [Physics, q-Fin], July. http://arxiv.org/abs/2106.14204.
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