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More investors tread into Wild West of cryptocurrency

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Cryptocurrency is catching more attention from investors. Although many find the buying process complicated and more than a few may not fully understand risks associated with crypto, some like it as a hedge against inflation and express confidence in its future in the mainstream. (Photo illustration by Bermix Studio on Unsplash)

“Fortune favors the brave.”

The ancient Roman proverb is being used by Hollywood actor Matt Damon in television ads for Crypto.com, an app used to purchase bitcoin, ethereum, litecoin and any number of other versions of cryptocurrency available in the market today.

With bitcoin selling for more than $65,000 per coin and the entire cryptocurrency market valued at more than a trillion dollars, there is a lot of fortune out there, along with a rising number of brave investors taking the crypto leap.

Damon is just a pitch man, but more and more big names are stepping into the spotlight with proclamations of confidence in a mysterious phenomenon understood by few but embraced by many.

Of course, Tesla’s Elon Musk and his pro-crypto tweets have been around a while, but more recent crypto enthusiasts have included Green Bay Packers star Aaron Rodgers as well as Miami Mayor Francis Suarez and New York Mayor-elect Eric Adams. All three say they want to be paid, at least partially, in cryptocurrency.

While bitcoin may be the most recognizable of the cryptocurrencies, hundreds of cryptocurrency versions have been created over the last decade, using various encryption algorithms and cryptographic techniques to safeguard against counterfeiting.

The first of the cryptocurrencies, bitcoin, was created in 2009 by Satoshi Nakamoto, a pseudonym for the inventor whose true identity remains unknown. While the intent may have been to create a decentralized form of money that can be used internationally and is not connected to a financial institution, cryptocurrencies are often criticized for their volatility and their use on the dark web. But cryptocurrencies are also praised for their portability, divisibility, inflation resistance and transparency.

Bitcoin and its lesser-known rivals are attracting more attention these days as the U.S. economy suffers from the worst bout of inflation in decades. Untethered to the dollar or any other world currency, cryptocurrency is perceived by some as a refuge.

The inflation genie is out of the bottle, says billionaire hedge fund founder Paul Tudor. In an interview with Bloomberg last month, Tudor said he’s betting on crypto as a hedge against inflation, which he considers the single biggest threat to financial markets.

But the bitcoin bandwagon is not reserved for only billionaires and celebrities. Crypto is catching the attention of the mainstream as well, although many find the buying process complicated and risky. A few banks in Oklahoma and across the country see crypto as a potential business opportunity and are rolling out easier avenues for people to invest through online banking services.

Valliance Chief Operating Officer Alicia Wade said the Norman-based bank is setting up an online banking system that will allow customers to purchase bitcoin by the second quarter of 2022.

“There is a sense of growing demand, and we don’t want to let it pass by when customers expect us to be relevant,” Wade said. “This is a way for us to gauge where the demand is, and I feel like this is a good time to get involved.”

Tulsa’s Vast Bank already has introduced its crypto banking service for consumers, claiming to be the first in the country to offer customers the ability to purchase and sell cryptocurrencies alongside traditional checking accounts.

According to the bank, customers can use an app designed to simplify the buying and selling of cryptocurrencies within a traditional personal banking experience.

Vast Bank Chief Executive Officer Brad Scrivner said a growing number of customers have shown interest in purchasing cryptocurrencies through their bank accounts, expressing concerns about the security of other cryptocurrency platforms.

The bank offers crypto account insurance and says customers will not be locked out of accounts, even if they forget their passwords or digital keys, pitfalls that have cost investors more than $140 billion in lost bitcoin value since the beginning of 2021.

Norman businessman and entrepreneur Kenny Adams began studying cryptocurrencies last year and eventually became an investor in May. He said his initial investment of $10,000 has grown into a portfolio of more than $46,000, but cryptocurrencies are not for the faint of heart.

“Don’t invest anything that you’re not willing to lose,” he said. “Crypto is like the wild, Wild West.”

There is no customer service, Adams said. If an investor accidently sends money to an invalid address, there is no one to call. The money is lost. But despite its shortcomings, Adams believes in the future of cryptocurrencies.

“In my opinion, this is the next big thing that economies will grow on,” he said. “Cryptocurrencies could streamline and simplify transactions no matter where you are in the world.”

“It’s not there yet, but crypto is really starting to come into the mainstream, kind of like the internet before it became the internet.”

Jake Dollarhide, co-founder and CEO of Tulsa’s Longbow Asset Management, approaches crypto with caution.

“We’re in the Wild West with crypto, and we don’t even know what we don’t know,” he said. “There are legitimate cryptocurrencies that are being tarnished by illegitimate cryptos.”

The whole thing is like the soft drink industry was 50 years ago, he said. There was Coke, Pepsi, Dr Pepper and a bunch of other brands fighting for market share. Some made it. Some didn’t. Today, there is bitcoin, ethereum, litecoin and a long list of other cryptos that may or may not survive. But in this case, investors could be left with nothing.

Dollarhide said he doesn’t recommend crypto as an avenue for investment, but he doesn’t discourage it either.

“It’s another investment class, but people need to understand the risks,” he said. “I’m neutral on it, but I want their money to be safe. What’s exciting is people can make money and they have made money, but cryptocurrencies don’t have any rules or assurances. If something happens, there is no recourse.”

He suggests investing in exchange-traded funds that track cryptocurrency futures, which are safer from an investment standpoint.

Zac Reynolds is not a fan of cryptocurrencies. The chief investment officer of Oklahoma City’s Full Sail Capital has been watching them for years and talks with clients about them regularly.

“Occasionally, people want to invest in something we would not recommend,” Reynolds said. “We put crypto in that bucket because there isn’t anything backing them. I wouldn’t even call it investing.”

The value depends on demand from other people. Investors purchase cryptos, hoping others will buy them too, increasing demand and pushing the price up. They’re a speculative investment, like a bubble. They’re not even a currency, Reynolds says. Dollars are a currency, backed by the government and protected by regulatory measures that can help ensure stability and long-term value.

Cryptos may have taken a small step toward mainstream investing last month when the Securities and Exchange Commission allowed bitcoin futures exchange-traded funds to start trading. While they offer stronger investor protections, Reynolds said they don’t give investors the one-to-one value transfer that actual coin ownership can.

Whether investing in ETFs or the cryptocurrencies themselves, people should limit investments to no more than 2% or 3% of their portfolios, he said, and if that grows to 5%, then take some profits. Be cautious, because the crypto world is still the Wild West.

Maybe that explains Matt Damon and his Roman proverb about fortune and the brave.

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