A Guide to Cryptocurrency

An exploration of the hidden truths behind the crypto allure. Should we be investing?


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The FTX cryptocurrency exchange is currently suffering a dramatic collapse. Will this be the downfall of the crypto market?

What does Kim Kardashian know about Crypto that we don’t? Most likely, not much. In October 2022, the Securities Exchange Commission (SEC) fined Kardashian 1.3 million dollars and banned her from promoting any cryptocurrencies for three years. This was seen as a warning to dissuade other celebrities from using their extensive influence to promote cryptocurrencies — an asset that the SEC sees as an immense risk.

Cryptocurrencies are inherently difficult to understand because their value is not based on fundamentals, like a traditional stock. When we learn about investment in school, we think of material goods that are given a certain value based on the concept of supply and demand. We have been taught that gold is more valuable than bread because it is more rare. Crypto, on the other hand, has no tangible value at all. It is simply based on the collective belief of buyers and sellers. 

Cryptocurrency is also simply a long number, given value simply because it fits an encrypted algorithm. It is a decentralized form of payment that exists independently from any existing institution such as governments or banks. It operates on a platform called the blockchain, which allows participants to confirm transactions without a need for a central clearing authority. 

But then how is it that we, as a society, perceive crypto to be valuable? It can’t just be because Kim Kardashian told us it is. It is because we can’t quite understand how its worth is derived and that someone is telling us it is valuable. 

But why do so many people invest in cryptocurrencies without understanding where they derive their value from? What is the appeal?

Sunay Chawla ’25 said, “One advantage for personal investors is absolutely the fact that there is a possibility for high rewards that tower over those of other investing mediums.” 

Chawla emphasizes the profit-driven aspect of cryptocurrency and the appeal of high-risk and high rewards. This promise has captivated many people in search of “getting rich quick,” but it doesn’t always work.  

Digital cryptocurrency was originally created in 2008, and since then, it has slowly started gaining widespread popularity. The first form of crypto to be released was Bitcoin, still the most widely known currency in the digital world. After Bitcoin’s success, other currencies were launched, adding credibility to the crypto market. 

However, even after it gained millions of users, crypto still remained extremely volatile. 

When asked, students at Bronx Science seemed wary about investing in crypto currency. Many students claimed that they were simply too young for investment and many others stated that investing in crypto is too risky and often costly. 

The sad truth is that cryptocurrency makes the rich richer and the poor poorer. Not dissimilar to other risky derivatives — think of subprime mortgages, loans that are offered to borrowers with impaired credit records and normally come with high interest rates. Those with knowledge about the function of crypto currency buy up a ton of shares at a low point, sell them at a high point, and wait for the crypto market to crash. The lay buyers, gullible and in search of making a windfall,  end up losing their small accumulated fortune. 

The simplest way to depict the current crypto market would be comparing it to the 2008 housing crisis. 

The 2008 financial crisis was fueled by cheap credit and relaxed lending standards. In 2004, the government aimed to boost the economy by making money available to consumers. The result was a massive increase in home prices, as borrowers took advantage of low interest rates and the lack of credit needed to find a home. Prices increased by an average of 46.3% between 2003 and 2006. 

By 2006, everyone was either buying one home or many, houses they could not afford. Instead, they locked into mortgage rates that were variable and would, at some point, increase — with little knowledge of what this actually meant. As credit constraints eventually tightened and loans could not be repaid, the bubble burst. By 2006 to 2007, home prices began to fall rapidly and peoples’ homes were now worth less than their original price. As a result, people could not afford to pay back their mortgages at the new rates. 

On a less severe scale, the cryptocurrency bubble works in the same manner. Crypto currency is highly speculative, murky and not easily understood, most likely by design. These factors combined with the promise of fortune and wealth create the same conditions for a big crash.

Marina Gallo ’24 said, “The crypto bubble is continuously growing. This is essentially what makes many skeptical of investment. Bubble pops almost always result from too much economic stimulation and overvaluation of assets.” 

It is now becoming abundantly clear that the unknowns of cryptocurrency and its inherent volatility do not make it a good candidate for a sound investment. But there are other contributing factors that set cryptocurrency apart from the rest as being a captivating and intriguing investment.

America contains the far left, who are not in support of our current center-left government because of the lack of government regulation and proper taxes on the rich. And on the contrary, we have the far right, who believe “the freer the market, the freer the people” and are not in support of our current center-left government as well.

Although seemingly opposites, both relate back to the idea of cryptocurrency. An investment in cryptocurrency is presumably thought of as a chance to make a lot of money really fast. However, it is also a chance to defy our government regulated processes. 

Cryptocurrency, in theory, is set up as a currency in which the transactions are verified and maintained by a decentralized system. The use of cryptocurrency allows individuals to transfer money without being taxed and avoid American banks as a protest to our current systems. It is also commonly used to send remittances to other countries without the taxes on the transfer of assets. While this can be of great service to people who rely on this money, it is also bad for tax collection and inevitably government funding. 

Criminals benefit from the use of digital currencies. It remains a common misconception that crypto is more traceable than cash, since all transactions are public and accessible. However, crypto algorithms make tracing transactions nearly impossible, since payments are anonymous and in complicated code.  

Over the last few months, we have seen the values of cryptocurrency swing wildly, and witnessed the downfall of several prominent crypto exchanges. The technology is intriguing and it has the potential to become something substantive. For the moment though,  it is still in its trial stages, and we do not yet understand why a token is a token or how a dollar is a dollar. The media doesn’t either, nor do social media influencers. At least no one seems to be able to explain it in simple terms. So we are stuck with allure and ignorance with a public’s penchant for jumping into get rich quick investments. What could go wrong?

But why do so many people invest in cryptocurrencies without understanding where they derive their value from? What is the appeal?