Ask Chuck: Should I trust cryptocurrencies now?

Dear Chuck,

Since the FTX debacle, do you think the crypto market has been ruined?

Cautious Investor

Dear Cautious Investor,

I don’t think cryptocurrencies are ruined, but the idea that they are a trustworthy asset is severely damaged. Let’s look at a few details of FTX’s collapse and then some biblical principles for investors.

A historic destruction of wealth

Thirty-year-old Sam Bankman-Fried (SBF) lost a $16 billion fortune in less than a week. He resigned as chief executive on November 11th, the same day the cryptocurrency exchange FTX filed for bankruptcy. The entire staff of the FTX Future Fund resigned as well.

Before SBF’s empire collapsed, he spent millions in the Bahamas to fund a lavish lifestyle. He purchased a $40 million penthouse and a 52-foot yacht and spent tens of thousands of dollars every week to feed his staff and guests. FTX supposedly employed 300 people on the island. Interestingly, SBF received a $1 billion personal loan from one of his own firms.

Bloomberg called this debacle “one of history’s greatest-ever destructions of wealth.” SBF’s belief in “effective altruism,” the theory of making as much money as possible in order to do as much good as possible, is contrary to what the Bible teaches. It places man as the solution to man’s problems, as opposed to focusing on man’s need for a Savior and Redeemer. In SBF’s case, money was used as a guise for greed, selfishness, and virtue signaling.

Money flows toward trust

Confidence is the most important aspect of any investment decision. We choose banks, advisors, investments, and even our relationships based on the intangible yet irreplaceable value of trust. I have often said that money flows toward trust just as water rolls downhill. That is the basis of how you and I manage money. Let me explain with a simple example. 

You ask your teenage son to run to the grocery store to pick up a gallon of milk, a loaf of bread, and a dozen eggs, so you give him a $100 bill and ask him to bring you the change. (My illustration is before the recent rash of inflation.) He is eager to run the errand because he can drive the family car. It takes a while, but he finally returns with the milk, bread, and eggs. However, when you ask for your change back, he says there isn’t any. He explains that he is not sure what happened, but it was more expensive than his mom thought. While there would be some debate about what really happened, one thing is for sure. She will not give him a $100 bill to go to the grocery store for her the next time she needs milk, bread, and eggs!

In his piercing admonition in Luke 16:10–12, Jesus taught us that He manages funds based upon trust as well:

“Whoever can be trusted with very little can also be trusted with much, and whoever is dishonest with very little will also be dishonest with much. So, if you have not been trustworthy in handling worldly wealth, who will trust you with true riches? And if you have not been trustworthy with someone else’s property, who will give you property of your own?”

In this teaching, we are the teenager with the $100 bill to run the errand. We are expected to be fully trustworthy with the Lord’s money if we expect to be trusted with true and better riches.

It is said that trust is the one thing in life that is the hardest to earn and the fastest to lose. The Lord calls us to be completely honest and trustworthy in all ways.

Future of crypto assets

FTX is not a crypto but a crypto exchange. However, the loss of trust in FTX and other exchanges that may have similar problems has had a contagious spread of fear among those who hold actual crypto assets. I appreciate John Mauldin’s perspective in his recent newsletter, Digital Shiny Objects. I recommend the entire article to you. Here is an excerpt:

“I haven’t written much about crypto because, quite frankly, I’ve never felt the attraction. I’m not against the concept; I understand the philosophical libertarian argument. But I keep trying to find a “use case.” Yes, I can avoid public/government scrutiny of my financial activities but so can all kinds of bad actors. I trade the inherent problems of fiat currencies for a different set of problems.

Cryptocurrencies can be extraordinarily useful for people in emerging countries with problematic currencies. But if you are in most of the developed world, the volatility and risk of cryptocurrencies has so far been greater than that of your local currency. Yes, the dollar is depreciating due to inflation. I can manage that with reasonable planning. Using Bitcoin or another cryptocurrency simply changes my risk exposure.”

Beware of the lure

The Bible has much to say about the lure of riches and how easily we can be led astray. It is good to be a cautious investor not only to protect yourself from scams, rip-offs, and poor returns but also from being controlled by your own greed and covetousness.

“But godliness with contentment is great gain, for we brought nothing into the world, and we cannot take anything out of the world. But if we have food and clothing, with these we will be content. But those who desire to be rich fall into temptation, into a snare, into many senseless and harmful desires that plunge people into ruin and destruction. For the love of money is a root of all kinds of evils. It is through this craving that some have wandered away from the faith and pierced themselves with many pangs” (1 Timothy 6:6–10 ESV).

“Do not be overawed when others grow rich,  when the splendor of their houses increases; for they will take nothing with them when they die, their splendor will not descend with them.
Though while they live they count themselves blessed — and people praise you when you prosper — they will join those who have gone before them,  who will never again see the light of life. People who have wealth but lack understanding are like the beasts that perish” (Psalm 49:16–20 NIV)

“Whoever trusts in his riches will fall,  but the righteous will flourish like a green leaf” (Proverbs 11:28 ESV).

The Crown Stewardship Podcast can be a valuable tool to provide wisdom and insight into how you can effectively steward God’s resources — both time and money. You can subscribe for alerts of new episodes. I hope you find it beneficial.