Hold onto your DeLorean seats because we’re going back in time. The year is 1988 and Wall Street’s entered a new golden age with wild bets being made on such an unprecedented scale — not seen since the eve of the gilded age of the 1920’s. KKR is about to tenure the largest management buyout in history with a market that has an insatiable demand for cheap debt and high yields. In short, it was a time in finance wilder than the O.K. Corral.
In this new wild west, something darker had become the hallmark of the age — greed, fraud, and deception; a culture that is characterized today by caricatures like Gordon Gecko. It was the era that allowed duplicitous bad actors to make fortunes never seen before on Wall Street. During this time though, everyday Americans were finding themselves the victims of brokerages pushing pink list securities. At the end of those cold calls seldomly was there a broker with their client’s portfolio in their best interest. Wild cat brokers had begun organizing large scale pump and dump schemes — a scheme where through large phone banks or boiler rooms operations would use high pressure sales tactics and dishonesty to persuade unsuspecting and trusting individuals to buy worthless securities, while also holding large baskets of these securities in effort to drive up the market price. When the collaborators reached their desire price target, they would then sell their shares — leaving everyday people holding the bag.
Today it is the same dance with a different tune — victims of financial crimes aren’t finding themselves being duped as easily by fast talking salesman but instead through influencers on social media pushing master classes and cryptocurrencies. Securities law has become strict in limiting influencers from promoting equities, but cryptocurrency has been left largely ignored. The online crypto community is massive, and opportunistic influencers are rubbing their hands together at the prospect of selling the greater public a repetitive, well told lie. When challenged, these influencers and gurus often default to “few understand this”. Cryptocurrency is not some great mystery, however, and the charlatan evangelists on social media (with little to no verifiable credentials) often do nor do they have your best interests at heart.
Several high-profile influencers have been participating cryptocurrency schemes this includes but is not limited to members of the FaZe Clan, FaZe Jarvis, FaZe Banks, FaZe Kay, FaZe Teeqo, FaZe Nikan, Adin Ross, Tana Mongeau, Lana Rhoades, and the list goes on. The FaZe Clan recently took action against some of it's members but limited the enforcement to more junior members of the group. These schemes are not always outright overt memecoin shilling, often the more complex schemes will be smaller influencers using clickbait to pull you into the top of the funnel with tales of woe of an impending financial collapse and then later begin to pull their potential victims further down the funnel. The new boiler room brokerages are now being built on social media. It’s the new wild west and again the county sheriff is asleep passed out behind the saloon as the bandits race for the county line. However, it’s only a matter of time before the SEC re-aligns its focus in creating stricter rules around promotion schemes.
Here is an honest take on cryptocurrencies though: inflation does exist, though it is largely predictable, planed, and controlled - if you want to protect your wealth once could look at crypto as a hedge to cash. It should purely be looked at as an insurance product, not something you throw your entire life savings into. Think of it as perhaps a part of “doomsday planning” for a weakened dollar, that is if you think an unlikely dollar collapse apocalypse will have Wi-Fi.
The largest factor that crypto influencers always evade and will never tell you is the liquidity question. What liquidity means is that the market is deep, and you are able to buy in and sell out without taking a massive price loss. In other words, the market is so large that for every $10 billion worth of an asset that is being sold there are many buyers on the other side that are willing to buy that asset at or near the price that you want to sell at.
To add further context, fiat-forex markets see an average dollar denominated 24-hour trading volume of $5 trillion to $10 trillion, that is the definition of a liquid market a seller could trade $100 billion in dollars to Euros and the market wouldn’t even notice. Bitcoin on the other hand sees less than $40 billion in average 24-hour trading volume, that amounts to raindrops in the ocean next to the sheer size of the financial system. Large-cap stocks see 3x that in 24-hour trading volume. The difference, however, from high market cap companies vs. “large” cap cryptocurrencies, is that large stockholders are betting on multi-decade time horizons of stock performance based on these companies consistently generating hundreds of billions in revenue year after year with predictable parallel stock performance and investor demand.
So, if you’re thinking about buying cryptocurrency, meme stocks, or seeking advice on financial markets, do your own research and don’t trust influencers (avoid them like the plague when it comes to your wallet). Look for liquidity and think of the long term.
Source: Brookfield Brief