Basic financial literacy and the bitcoin collapse

Basic financial literacy and the bitcoin collapse

Crypto currencies have been collapsing as markets turn south. No matter which side of the argument you fall (Crypto currencies are the future or it is all just a pyramid scheme), I have been surprised by the responses on the crypto currency forums. There seems to be a large population of the crypto currency owners that lack very basic financial literacy – and that is somewhat frightening considering people were being encouraged (and have) mortgaged homes, put life savings, and highly leverage debt to go all in on crypto purchases. Purchases that have dropped anywhere from 60% for Bitcoin to 100% for various stable coins that have gone to zero.

An example of a real lack of literacy was reading forums about the collapse of the Celsius Network that halted all withdrawals, sale of coins, and is now in debt restructuring. Most users have now lost everything. Very few people on the site realized they had signed their digital coins over to the platform and that their deposits were being used to secure highly speculative financial loans from Celsius. This despite the fact these policies were clearly stated on the site.

Even more telling is that a twitter and crypto advocate otteroooo had been sounding the alarm of growing insolvency issues at Celsius for weeks before the freeze and collapse – but was almost universally attacked and yelled down by crypto supporters calling it lies, FUD, and much worse. This thread was describing exactly what was going on and yet users were in complete denial and universally attacked him. Even after Celcius froze their assets and went into debt restructuring, most respondents on the Celsius reddit forum denied it was happening, didn’t understand the implications, and were still in complete denial and attacking people that were sounding the alarm. Even when one of the pinned posts on the front page was a 1-800 suicide prevention hotline.

Sadly, this was all very preventable and it’s not like this is new. I believe crypto is now having their very own 1929 market crash – a crash that is demonstrating the same brutal consequences as that original crash. These kind of bank runs are exactly why the FDIC was set up to both guarantee customer’s funds but also ensure the bank was not over-leveraged.

One can only hope the crypto world has learned a valuable lesson about the real dangers of unregulated markets and that many promises of stablecoins and crypto being stores of value independent of the market have been conclusively proven false. It’s just sad that now many of these forums are posting suicide prevention hotlines for real people losing everything.

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