Because they take me so much time to do each month, my wonderful Staff is seeking to help me by suggesting I let artificial intelligence write my newsletters. One large hesitation is that I find periodic inaccuracies in some of the AI generated data.  As my valued client, you deserve the absolute truth in a world a bit short on truth and accountability.  Beyond that important characteristic, AI seems currently to be unable to mimic my tripartite sense of rural Minnesota small talk, University of Chicago nerdiness, and absolute irreverence for the financial services industry.  As I tackle the complex topic of cryptocurrencies this month, never was that combination more needed as we explore;

1. What exactly is a cryptocurrency?
2. What is it to be used for?
3. How do they work?
4. Should I invest in it?

You should know that before the Great Recession of 2008, there was no such thing as cryptocurrency.  In 2009 the first cryptocurrency (Bitcoin) was conceived, developed and released. Just to begin to set the stage for some of the continuing mystique surrounding cryptocurrencies to this day, the real Bitcoin originator is unknown, as he/she operated under the pseudonym of Satoshi Nakamoto. Many have claimed to be Satoshi.  After 2010 Satoshi was never heard from again, BUT what he started as the protocol for Bitcoin – a limited eventual quantify (21 million digital coins) — IS STILL AROUND and the product launch fundamentally set the stage for all cryptocurrencies that would follow it. Because literally anyone can create and launch a digital currency, there are now 16,947 different cryptocurrencies in existence[i].

The initial intent (dream?) of cryptocurrencies were simply for these tokens to provide a digital medium of exchange and do so without using any financial intermediary (imagine no Chase bank or PNC, Bank of America, no checks written on your local credit union, no Visa or Mastercard).  Transactions using these ‘digital coins’ (also called the ‘tokenization’ of assets) would – by design – be free of government control (both supervisory protection as well as currency manipulation) as well as the oversight of its peering eyes.  Possibly for this reason, criminals were one of the early adopters but since then the use of cryptocurrency has gone mainstream[ii].  Total global market size is now estimated at $3.5 Trillion and a little less than 5% of all households in the USA have a crypto holding (though most hold less than one pay checks’ worth)[iii].

The fundamental appeal of a cryptocurrency is that it is independent of any central bank or government.  Libertarians loved them for that reason.  Transactions are direct between two parties.  Last month I wrote to you about “reserve currencies”, but historically all currencies of the world (the Japanese Yen, the Swiss Franc, the European Euro) are backed by the” full faith and credit” of the issuing national government.  Alternatively, there is no ‘backing’ of cryptocurrency per se.  The lack of a national government backing the digital currency is why the integrity of ownership is so important.  What would kill the concept is ‘counterfeit’ currency (be it Bitcoin, Cardano, Ethereum, Dogecoin, Litecoin, Polkadot, Solana, etc. etc.) so thus extraordinary methods were conceived to assure ownership is sound.  “Blockchain” is one such verification technology, a very sophisticated distributed ledger operating on decentralized networks around the world.  But keep in mind that not all cryptocurrencies use blockchain because it is operationally intensive and somewhat slow per transaction.  That gap created the demand for verification alternatives such as DAG’s (Directed Acrylic Graphs) and others now in use.

Two other quick caveats before we get to the investment side:

1. Keep in mind not all cryptocurrency has to be ‘mined’ such as Bitcoin, nor use blockchain.  Mining is a process that requires a ‘miner’ to verify all the transactions by solving various complex mathematical puzzles, and then they may be awarded additional Bitcoin (or some other cryptocurrency).  The blockchain Proof of Work (PoW) process is very labor and energy intensive, with some estimating its energy usage exceeding the annual use of the country of Norway[iv].  Proof of Stake (PoS) is another approach verifying blockchain and is much less energy intensive, but some would argue, less secure.  Thus, Bitcoin stayed with PoW, but Ethereum switched to PoS to gain favor with environmentalists and lower cost thresholds.
2. The unplanned and massive cryptocurrency value fluctuations (be they daily / yearly – see Dimensional’s ‘Bitcoin vs Russell 3000 Index Peak-to-Trough Declines’ graph below) make digital coins very unreliable as a medium of exchange.  In response to this shortcoming, a new variety of cryptocurrency has been introduced whose value is pegged to some fiat currency (like the US Dollar) or on a hard asset itself (such as gold).  ‘Stablecoins’ are what this variety of cryptocurrency is called and use of it has exploded in prevalence over the past few years ($26 Trillion in total transfer volume in 2024, more than the combined transactions of Mastercard and Visa[v], though it has been reported 90% of all volume is coming from bots and large-scale traders, not end users[vi]).  Still, stablecoins just got a boost in credibility with the June 2025 U.S. Senate passage of the Genuis Act to regulate them[vii].

Now that you have a foundation in what this animal is, the question on many people’s minds is should I invest in them? You can now buy cryptocurrencies on exchanges (Coinbase, Greyscale, etc.) and cryptocurrencies are being considered by some to be an institutional asset class of their own[viii].  You have certainly heard stories of people who have gotten rich (a $1,000 in Bitcoin invested 15-years ago would be worth $968 MM today.  With the current Bitcoin price upside of $100,000 each, the guy who bought two pizzas for 10,000 Bitcoins probably feels like he paid too much for his mushrooms, but I digress).

Let me share three quick thoughts on the topic:

1. Though the original goal of cryptocurrency was to ‘be your own bank’, only 4.4% of all holders use cryptocurrency to buy stuff.  Alternatively, 92.6% of users hold it as an investment so the original idea of crypto as a ‘stable mechanism of exchange’ has been surpassed[ix]. Any time the original concept has been that far surpassed it makes me wonder if it isn’t an idea over its skis.  Also, roughly 2/3rds of all people have ‘little to no confidence’ in cryptocurrency[x], which is a bad sign for it to be regularly used as a “currency” to pay your utility bills with each month. The ongoing hack and theft of cryptocurrency (North Korea and China) is bad enough, but the world got shocked when poster-child Samuel Bankman-Fried (FTX)[xi] was found to be self-dealing and crooked.
2. Companies must produce something for the value of their stock to go up. Stock prices are supported by earnings, dividends and growth.  Cryptocurrency appreciation, however, is solely dependent on finding someone after you willing to buy it for more than what someone sold it to you for – supply and demand only, not with any “intrinsic value” supported by any economic fundamentals (as Nobel Laureate Eugene Fama would label it).  That underlying economic void is why other individuals who have strong economic gravitas also view Bitcoin (and other cryptocurrencies) as speculative and unsupportable (i.e. Jamie Dimon, J.P. Morgan CEO, Warren Buffet, former head of Berkshire Hathaway among them).  Money manager Blackrock CEO Larry Fink was initially against cryptocurrencies, but he seems to have conveniently altered his opinion when his firm started making millions issuing digital coin ETF’s.
3. For any investment, you should have some metrics of what is ‘too high’ (and you sell it) or ‘too low’ (and you buy it).  There are simply no metrics on cryptocurrencies, so seeking to impose discipline on a concept that was created to be uncontrolled in the first place seems similar to the old definition of insanity.

Cryptocurrencies may not be the Tulip Bulb Mania[xii] of the 21^st century, but I think there are plenty of places to smell the roses without seeking the undue risk they seem to present. Be that as it may, now you know much more about cryptocurrencies and can decide on your own.

It remains my deep and distinct honor to serve you.

Pat Zumbusch
Founder and CEO

---

[i] Coingecko.com (June 21, 2025)

[ii] “2025 Crypto Crime Trends: Illicit Volume Portends Record Year As On-chain Crime Becomes Increasingly Diverse and Professional” (Chainanalysis, January 15, 2025)

[iii] “The Truth About Crypto” (Adam Rogers, Business Insider, January 15, 2025)

[iv] “Cryptocurrencies Energy Consumption Problem (Samuel Heustis, RMI, January 30, 2023)

[v] “Stablecoin Surge: Here’s Why Reserve-backed Cryptocurrencies Are On The Rise” (Spencer Feingold, World Economic Forum, March 26, 2025)

[vi] “More Than 90% of Stablecoin Transactions Aren’t From Real Users, Study Finds” (Emily Nicolle, Blumberg News, May 5, 2024)

[vii] “Senate Passes Crypto Regulations, Sends To House Without Addressing Trump’s Investments” (Joey Cappelletti, et al, AP, June 17, 2025)

[viii] “Should You Invest In Crypto Now” (Jeanne Saladi, Wealth Coach, CNN Business, June 7, 2025)

[ix] The Truth About Crypto” (Adam Rogers, Business Insider, January 15, 2025)

[x] -ditto-

[xi] “Samuel Bankman-Fried Sentenced to 25 Years for His Orchestration of Multiple Fraudulent Schemes” (Archives, U.S. Department of Justice, March 28, 2024)

[xii] “Dutch Tulip Bulb Market Bubble” (Corporate Finance Institute, June 22, 2025)