Crypto trading can be dangerous
- Robin Powell
- Sep 9, 2024
- 3 min read
Updated: 3 days ago
Crypto trading has exploded in popularity in recent years. From slick mobile apps to the rise of communities on Reddit and TikTok, it’s never been easier to jump in. For many, the lure is obvious: the chance of making high returns, fast.
But how safe is it really? Investment journalist Norma Cohen spent decades at the Financial Times and has serious concerns about both the nature of cryptocurrencies and how they’re being used.
In this video, she explains why crypto trading isn’t just risky — it’s not really investing at all.
Key takeaways
1. Question the purpose of crypto trading
Norma Cohen argues that cryptocurrencies don’t offer a clear, legitimate financial use. In her view, their main function seems to be disguising transactions, which raises concerns about regulation, transparency, and long-term value.
2. Speculation, not investment
Crypto trading is often marketed as a smart financial move, but Cohen says it’s more like gambling. It’s driven by hype and emotion, and doesn’t belong in a long-term portfolio like a pension.
3. Social media can create echo chambers
Online platforms make it easy to filter out dissenting views. When traders only hear positive stories and like-minded opinions, they may take bigger risks without fully understanding the downside.
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TRANSCRIPT
Robin Powell: Cryptocurrency trading has become increasingly popular in recent years.
It’s down to a number of factors, including technological advancements and increased adoption by mainstream institutions.
Another major factor is the possibility of high returns. Many of us know of people who’ve made money buying cryptocurrencies like Bitcoin and Ethereum.
But Norma Cohen, who was an investment journalist with the Financial Times for many years, cautions against it.
Norma Cohen: I wouldn't touch it with a barge pole personally. The reason is simple. Tell me what crypto is for. What does it do that no other asset class can do?
I have not been able to achieve a satisfactory response to that question, other than to hide funds from tax authorities, regulatory bodies, drug enforcement monitors. The only purpose of crypto, as far as I can see, is to disguise transactions that involve some form of finance.
RP: Something else that concerns Norma Cohen is the potentially addictive nature of crypto trading.
We tend to hear about the winners, but millions of people have lost money, and, in many cases, substantial amounts.
NC: I have two adult children who are working full time, earning good salaries and saving for pension, and I have warned both of my children not to touch crypto. Yes, you can look very attractive because everyone is tweeting about the fantastic gains they are making from having bought this or that. But I do. It is not an investment. It's a speculative bet.
And it certainly doesn't belong in a pension fund. And the purpose is for illicit activity is to finance illicit activities. I do not think this is anything you want to go near.
RP: Social media has played a big part in the growth in crypto trading. Sites like X, Reddit and TikTok foster communities where users can share experiences and discuss strategies.
The danger is, it can simply create an echo chamber.
NC: Health warnings are necessary. With everything. And as a journalist, I suppose I have a natural cynicism about any kind of claim that anyone makes about how superior their own performance is. But that doesn't address what social media has done, is to open up information channels to many people that did not previously exist. And, that could be a good thing and a bad thing.
But what it does do is allow people to, in effect, insulate themselves within a relatively narrow band of information. People can tailor the information they see, in a way that reinforces their own predispositions. I think that's dangerous.
RP: The bottom line is that buying cryptocurrencies is more akin to gambling than investing.
Of course, if you manage to buy and sell at the right time, you could be one of the lucky ones.
On the other hand, you may lose most, or even all, of your money.
© The Evidence-Based Investor MMXXV
