by Brandon Reiter
The other day I was scrolling through my Instagram feed and noticed a post from an “investor-influencer” account. It read, “Hustling my way up the corporate ladder made me my first $100K, working in tech was my first $1M, building a real estate portfolio made me my first $10M, investing in crypto will get me to $100M, don’t doubt what hard work and consistency do.”
There’s a lot to unpack here. While there was probably no malicious intent, the ripple effect this “influence” could have, may lead to serious repercussions for the young audience consuming it down the road.
The post was made by Richard Garcia, an influencer with more than 315,000 followers on Instagram. He appears to be a successful business man and investor. According to his website, Garcia began his career working in finance, then moved to tech where he worked for notable companies like Google and Tesla. He also claims to have a real-estate portfolio of $8M (just 20% off from what he said on his Instagram post). Richard, if you’re reading this I believe you worked very hard to make it as far as you and I mean no disrespect, but I do caution against posts like these, because they can be very easy to misinterpret the actual hard work you put in to arrive at your success.
What jumped out to me immediately, as I’m sure it did for most of you, is that the post appeared to start off as a realistic tale of personal and wealth growth, but then it suddenly takes a sharp turn down a road built on the hopeful need of perpetual rising crypto prices. Taking $10M and turning it into $100M is quite the return on investment (ROI), and it accounts for 90% of the wealth created by Richard’s “hard work and consistency” theory.
While it’s plausible for certain cryptocurrencies to eventually be worth 10x their current prices, that ROI requires the least amount of effort compared to all of the other activities Richard listed. In fact, making an investment in crypto (with no research) doesn’t require any work, just money. Therefore, someone reading this post could say, ‘well if I can just skip to the investing part and I can get a 10x ROI, I can just skip the hard parts of Richard’s journey and still make a lot of money.’ However, those steps were important for Richard’s development, as they provided him with the capital to invest, as well as his business/investing knowledge and experience.
This is not an anti-crypto post. As a matter of fact, I do believe that cryptocurrencies (in one form or another ) will indeed be the future of monetary transactions across the globe. However, it is impossible for anyone right now to be sure as to what that one form (or another) will be. Maybe it’s Bitcoin or Ethereum that eventually become a universal dollar, or maybe it’s something that hasn’t even been invented yet. The upside for investing in the potential future of the global economy has brilliantly high ceiling, however, unlike investing in a blue-chip stock, it comes with a pitiless downside risk. The dangerous “Crypto-is-the-future-no-ifs-ands-or-buts” attitude can lead to something very similar to what most Gen-Zers are too young to remember: the 2008 Global Financial Crisis.
Richard is not a Gen-Zer, he’s a millennial like me, but I’m sure a large portion of his following are younger. If you are younger than me or Richard, or you want a good old reminder of what happened, I’ll give you a very brief history of what caused the The Global Financial Crisis of 2008:
In the early to mid-2000’s, following the economic resurgence from the dot com bubble (we’ll talk about that another time), house prices were rising exponentially year after year. If you bought a house in 2002 for $300,000, you could have sold it in 2005 for $700,000 (these aren’t actual numbers or percentages but it’s about the concept). Even if you didn’t have $300,000 or any potential to make that, a bank would happily lend it to you (even if you had terrible credit). Millions of people took out these loans known as adjustable-rate mortgages (ARMs) with the notion that, although they wouldn’t be able to pay it back if they kept the house forever, they could sell the house within a few years and stand to make a substantial ROI. And they did… until they didn’t.
In order to sell that house for $700,000 there must be a buyer who believes that the price of that same house will continue to rise and be worth $1 million in another few years. But what happened when that sentiment died down and suddenly the buying market wasn’t as bountiful? The person who took out the $300,000 loan got stuck with a house they couldn’t afford, and a bank who wanted their money back. So what happens to banks when most of their customers can’t pay them back? They can’t lend out anymore money. This further accelerated the dwindling amount of home buyers. What a lot of consumers start going bankrupt? They liquidate their other investments (stocks). That’s when the market crashes. While I skipped over a few major details, this brief history lesson is a description of a familiar market phenomenon known as a bubble. Once the vast majority of people were stuck with homes they both couldn’t afford nor sell, the growing bubble of housing prices burst and created a tsunami over the global economy.
Now let’s think back to our friend Richard’s post. Although he may not have meant to say this, his words can be interpreted by a young audience, naïve to bubbles, as ‘hey put your savings into a crypto investment and then one day you’ll be able to sell it for a lot more money and be rich like me (but also work hard)’. This could be true for a certain time period, but what happens when an entire generation too young to remember the effects of the housing bubble all have the same bullish sentiment that they can buy crypto and eventually sell it to someone else for a steep profit in the future? A bubble grows. And what happens to bubbles that grow and grow? They burst. And what happens when bubbles burst? Yup, the tsunami thing.
So let’s take our average Gen-Z investor who sees Richard’s advice and says to themself, “well if I can make 10x on my crypto investment, why would I even subject myself to the struggle of climbing a corporate ladder when I can generate way more wealth by not even working?” Maybe that person passes up on a $100K job opportunity which Richard worked so hard to achieve. Instead, to make that $100k, they take all $10K of their savings from their summer internships and jobs from college and invest in crypto. This act alone has multiple ripple effects on the economy. For starters, it becomes harder for a company like Google or Tesla to hire talented young minds like Richard, because all of a sudden it isn’t worth it for them to take the job. Eventually those company’s begin to incur larger labor costs in order to entice skilled workers to come work for them. Suddenly it becomes way more expensive for Google and Tesla to keep innovating at the same level of profitability, and technological advancements in general begin to slow down. Not only that, but as these major company’s bottom lines begin to fall so do their stock prices. What happens to the older investors in those blue-chip stocks (like ya boi)? Their wealth begins to dwindle as well.
With a declining market, it becomes harder for people even younger than our hypothetical Gen-Z investor to generate that initial $10K of savings. There are fewer stocks for them to invested in, and there are fewer jobs for them to get (because the company has to pay more for the experienced workers, they have less money to pay entry-level positions). Not only that, but the local restaurant owner doesn’t have enough money to offer that kid a waitering job for the summer. All of a sudden when Gen-Z-investor-person looks to sell their crypto assets for $100K, there aren’t any of the buyers that Richard said there would be. No cap. As a result, this investor lost out on creating self-value by passing up on working for an innovative company out of college, AND has lost all of their savings. Now imagine a whole generation of people like this: broke and jobless. What happens to the economy then? Tsunami.
I hope I’m wrong; some of my exes would probably agree that I often am. While I understand the general concept of cryptocurrencies, I am far from an expert. I am also not an economist either (I just read a lot of their books). What I DO have are two eyes and history to refer back to. As I look at these patterns of the past and see posts like Richard’s, I worry that the unleashed Crypto bullish investors of Generation Zed can unknowingly be led down a path to creating a bubble that can burst one day and send the global economy back under water.
Allow me to reiterate that I definitely can be wrong (and so can Richard). That’s why I’m invested in crypto myself. Before you start laughing, let me tell you that it only accounts for roughly 5% of my total investments. If Richard is right and it 10xs, I’ll be pretty happy (and will probably be called a dumb millennial by Gen-Zers (at least I’m no boomer though right?!)). On the contrary, if the whole tsunami thing happens I’m more diversified than the poor Gen-Z kid who sunk all of their savings into it. Who’s laughing then, huh?
The point being: I don’t want to dissuade you from taking risks, but when it comes to investing in new/unpredictable advancements in technology, take any advice (including this) with a massive grain of salt and do your own research before you put your entire financial stability on the line.