CRYPTOCURRENCY IS HERE TO STAY

 

 

“I can say with almost certainty that cryptocurrency will come to a bad ending.” Warren Buffet

 

Recently, my commentary discussed the need to improve financial literacy in America. This week, I will provide some basic information on a type of investment that only a few short years ago seemed too risky and volatile for even the most seasoned investor to consider – cryptocurrency, also known as crypto.

This perception is about to change. The election of Donald Trump will bring crypto into the mainstream of our financial system. While many of us may never purchase any crypto product, like artificial intelligence, crypto now deserves our attention. At a minimum, we should understand what it is and how it works.

Bitcoin, which was launched in 2009, was the first cryptocurrency, and it remains by far the largest of the numerous offerings. By mid-2024, there were 10,032 different digital currencies in this asset class with new types of crypto constantly coming to market.

Crypto operates as a digital alternative to traditional money issued by governments. The currency is often called a "coin" because it represents a unit of digital value that can be exchanged like a traditional physical coin, even though it exists solely online.

To maintain a record of who is buying and selling crypto, a technology known as “blockchain” confirms and records all transactions on a publicly available digital ledger. The blockchain replaces the need for financial institutions to hold currency and to track its movement. In theory a blockchain is tamper proof and designed to prevent any type of fraudulent transaction.

To make a crypto transaction, a user simply needs a “wallet” or digital address which holds each individual’s digital currency.  An access “key,” known only to the user, ensures private and secure transactions. A buyer authorizes the movement of a specified amount of crypto from his/her wallet to the seller’s wallet address. For the system to work efficiently businesses known as digital currency exchanges are required. These entities act as clearing houses and online marketplaces for the purchase and sale of crypto.

Advocates of crypto believe it is the future of money.  However, according to a recent survey by Pew Research, only 17 percent of U.S. adults have owned any crypto product.  In addition, a majority of Americans over age 50 view crypto with skepticism and are not confident of its safety or reliability.

Two examples help illustrate why the public has been suspicious of the crypto market. First, in 2022, the large crypto exchange FTX was widely regarded as safe and one of the best organized. When FTX failed because of mismanagement, including embezzlement of billions by its founder, Sam Bankman-Fried, the very foundation of the crypto industry was shaken and came under attack.

Second, among all asset classes, crypto has one of the most volatile trading histories. This is because crypto is not traded on its fundamentals. It is traded on speculation of future price movements. 

The currency has experienced several massive rallies and spectacular crashes since it first became available. This month, the total value of the top 125 crypto coins— stands at $3.6 trillion, some $2 trillion of which is Bitcoin, just over 55 percent. That’s up 124 percent year to date and 1,720 percent over the past five years. But it is important to remember that Bitcoin also fell over 71 percent from September 2021 to November 2022.

The Biden administration began a push to regulate the crypto industry under its Securities and Exchange Commissioner Gary Gensler. This agency sought to categorize the vast majority of crypto as securities. It proposed strict rules for formation and operation of crypto assets. In a recent setback for Gensler, the SEC was forced by courts to review its denial of certain Bitcoin-related investment products, including exchange-traded-funds. Gensler will resign from the SEC before the Trump Inauguration and will be replaced by crypto-friendly Paul Atkins.

Trump made the removal of the SEC boss and the favorable treatment of crypto a promise to the industry while on the campaign trail. Following the proposed nomination of Atkins, the price of bitcoin surged above $100,000 per coin for a new all-time high.

On December 6, the investment site Barron’s observed, “We are about to be governed by the nation’s first unabashedly pro-crypto administration. Instead of being stymied by the federal government, the crypto cosmos will soon be enabled—nay, driven—by Trump and his team.”

One of Trump’s campaign promises that most excites the industry is his plan to create a national strategic reserve of bitcoins. A strategic reserve is a set of external assets that are immediately available and under the control of the monetary authorities. Under the plan, crypto would be incorporated into the mix of assets that the nation has on its balance sheet with the aim of diversifying reserves.

 J.P. Morgan analyst Ken Worthington recently told his clients, “The anticipation of a more crypto-friendly environment under a Trump administration is driving a surge in crypto business initiatives.” To help the industry, it is reported that Trump is considering the elimination of capital-gains taxes on cryptocurrencies issued by U.S.-registered companies. 

Some worried business leaders point out that it is now unlikely that any meaningful regulations will be promulgated to protect the public from disasters like the FTX bankruptcy. While crypto is moving into the financial mainstream, investors need to carefully weigh their options.

 

A YEAR OF DISCOVERY AND WONDER

 

In many respects 2024 has not been a year to foster fond memories. Two major wars continue to rage in the Middle East and in Eastern Europe. Natural disasters domestically and abroad, destroyed thousands of lives. Around the world, liberal democracies were challenged by authoritarian political actors.

In the United States, while the wealthy benefited from a rising economy, inflation made it difficult for many Americans to maintain their standard of living. Following the national election, half of the voting public was at first depressed and then angered when a convicted felon, Donald Trump, was easily elected president. The country remains more divided than ever.

While many aspects of human social progress appeared to backslide in 2024, significant technological and scientific advancements exploded. These events did not garner our attention like the many social disruptions. Thankfully, important scientific discoveries happen in an environment independent of societal changes.  Scientific and medical progress is not linked to how people think, interact or treat each other within a society. For the most part, scientists continue to challenge accepted solutions until better ones are discovered, free from political conflict.

To encourage some year-end holiday joy and “good will toward men,” I will highlight some amazing discoveries that should give us hope for the future.

Energy. “Water splitting” to form hydrogen and oxygen using solar energy in the presence of semiconductor photocatalysts has long been studied as a potential means of clean, large-scale fuel production.  In 2024, there were advances in using photocatalytic sheets to split water into its elements using the power of the sun. Photocatalytic reactors can be used in a variety of applications, including the conversion of pharmaceuticals, wastewater treatment, and air purification. 

The Heart. It may soon be possible to “repair a broken heart.” Previous heart developments included tests that identify hidden heart disease and images of a “digital twin” of a patient’s heart that enables precise pre-surgery modeling.

Major progress was made in using genetically modified pigs to provide personalized organ donors. A company called “Organamet Bio” has mastered growing heart cells from stem cells cultured from a patient’s blood. The cells are “engrafted” into a scaffold created with a pig’s heart that closely resembles the human heart anatomically. Clinical trials will begin soon.

In addition, advances have been made to regrow heart muscle after heart attacks using stem cells. This approach would reverse rather than alleviate chronic organ illness. According to the Wall Street Journal, “Damaged heart muscle affects about 6.5 million people in the U.S. and is the leading cause of hospitalization among Medicare patients.”

Cancer Treatment. Researchers are making great strides toward developing vaccines that instruct healthy people’s immune systems to eliminate the presence of cancer before it can develop. According to Dr. Ajay Bansal from the University of Kansas Cancer Center, “It is the future of cancer prevention.”

In fact, a cancer-vaccine renaissance is underway after decades of false starts. A better understanding of the immune system has rejuvenated the field. Companies like Moderna, that helped develop the Covid-19 vaccine, are working to bring new treatments to market.

Pre-cancer and cancer cells know how to hide from the immune system. The new vaccines use proteins that cancer cells produce to train the immune system to hunt down the abnormal cells. The new vaccines boost the immune response and direct it where to go.

Help for the Blind. Blind people are missing out on how the rest of us use electronic devices for reading, movies, and accessing the internet. New touch technologies are about to bring screentime to the blind. Specialized digital devices are being manufactured that display raised braille text and tactile graphics, refreshing in real time. Researchers are working on ways to permit live sports to be followed by touch.

A South Korean company, Dot Inc., has created an electromagnetic system that allows thousands of tiny pins to move up and down on the surface of a digital pad that is part of a refreshable braille display.

According to the Center for Disease Control and Prevention, more than seven million U.S. citizens have impaired vision. One million are totally blind, and 50 percent are unemployed. Experts have determined that in education “listening is not literacy.”  The blind must be able to access books, classroom materials, and technologies in order to be productive. The South Korean device, the “Dot Pad” is making this possible.

Ultrasound waves treat addiction. Neuroscientists have long defined addiction as a brain disease. Now, some addicts are undergoing a procedure where more than 1,000 probes of ultrasound waves are directed to the brain’s reward center. The goal is to reset harmful thought patterns.  In many cases, addictive cravings immediately disappeared. Therapy and coping mechanisms are introduced as part of the treatment. About 75 percent of participants remained substance-free several months later.

Artificial Intelligence. In 2024, the biggest technological development under discussion was artificial intelligence. According to computer scientist and author, Ray Kurzweil, “Artificial intelligence will reach human levels by around 2029. Follow that out further to, say, 2045, we will have multiplied the intelligence, the human biological machine intelligence of our civilization a billion-fold.”

If this prediction is correct, our social disputes, policy making and scientific discoveries are about to meet head on and shape the path of civilization. May this holiday season give us time to reflect on how such a future could benefit all of humanity.

 

 

 

 

 

 

 

 

 

IMPROVING FINANCIAL LITERACY IS IMPORTANT

  

Financial literacy is defined as “The ability to understand and effectively use various financial skills, including personal financial management, budgeting and investing.” In recent years, personal finance has become more complex. It is now more important than ever to understand the economy and how to employ the newer credit and investment products offered to the public.

Financial decisions we make between the ages of 25 to 65 can help provide for a comfortable retirement. Moreover, the financial literacy we accumulate during our years of working becomes invaluable when we come to depend on Social Security, retirement accounts and savings to maintain a reasonable standard of living.

Unfortunately, many older adults were never exposed to financial literacy. They did not receive any education or even advice to develop a sound financial plan.  With no strategy in place to reduce debt and increase savings, they often end up with inadequate fixed incomes and are unable to enjoy their golden years. In addition, many seniors left financial decision-making to a now-deceased spouse. These individuals lack financial knowledge and are more vulnerable to monetary fraud.

Financial literacy for young adults presents a different problem. The economy has dealt them a bad hand with the COVID-19 recession, high interest rates, college loans, and expensive housing. A November survey found that 64 percent of those between the ages of 27 and 42 have delayed a major financial decision because of the economy.

When young people experience bleak economic conditions, learning about and applying sound financial decisions seems less important. Peer pressure encourages short term “fear of missing out.” Disposable incomes are squandered on trendy clothing, travel, and entertainment. Saving for the future is not on their radar.

When it comes to investing, younger adults are unaware of the proven slow and steady wisdom of Benjamin Graham’s classic book The Intelligent Investor. Instead, social media encourages get-rich-quick investments offered by products like cryptocurrency and questionable cult stocks like GameStop and AMC theaters.

Online investment platforms, which are often designed to mimic sports betting sites, attract younger adults. The New York Times has reported that on the investment app Robinhood, young people buy and sell the riskiest financial products. Their inexperience has often led to staggering losses.

One in-depth barometer of personal financial health is the 28 questions given annually to US adults, known as the P-Fin index. This survey, developed by the TIAA Institute and the Global Financial Literacy Excellence Center has long been an accurate test to determine financial knowledge.

Data from the 2024 index reveals that financial literacy in the US has stayed constant at around 50 percent for eight consecutive years. The index explores eight functional areas across finance, such as earnings, savings, insuring, and comprehending risk. The results show that Americans appear most comfortable with financial knowledge on borrowing, saving, and consuming and the least confident financial risk.

Among the results, financial literacy with women has consistently lagged that of men by 10 percent. In 2024, young adults correctly answered only 37 percent of the survey questions. Individuals with low levels of financial literacy are twice as likely to be “debt constrained” and “financially fragile.”

Annamarie Lusardi, Senior Fellow at the Stanford Institute for Economic Research helped to organize the data from the report. She explains, “Financial literacy is an essential skill in today’s society. The consistently low levels of financial literacy among the most vulnerable groups are troubling.  It is high time to change the conversation about money, starting with adding financial education in schools and colleges.”

How do we ensure that more Americans are taught sound financial practices at an early age? Every year, more research and published reports extol the importance of teaching financial literacy. But a recent survey completed by Intuit found that 81 percent of high school students continue to get financial knowledge only from their parents.

Advocates for financial literacy agree that at least one semester of a stand-alone finance course would address the problem. To be effective, the offering cannot be diluted by weaving it into math or economics courses. Teacher training is another hurdle to overcome. Public education must be willing to spend resources to develop training programs and effective curriculum materials.

Instilling financial responsibility at a young age sets students on the path of long-term financial wellness. The key components of financial literacy would include: 1) understanding how money is spent through budgeting, 2) learning how to use credit cards and other forms of credit responsibly, 3) studying interest rates and debt repayment strategies, and 4) receiving financial education on different investment options.

Teaching financial literacy would benefit our society as well as individuals. Informed financial choices would help reduce poverty and elderly dependence on Medicaid for long-term health care. For younger Americans, planning and achieving financial goals for retirement would replace casual decision making. Mental health would improve by reducing financial stress.

Older Americans also require strategies for financial literacy. The “Money Smart for Older Adults Program,” developed by the FDIC, is one of many good options. It raises awareness among older adults and their caregivers on how to prevent fraud, scams, and other elder financial exploitation. The curriculum encourages advanced planning and informed financial decision-making.

Improving financial literacy is time and resources well spent for individuals and for our society.  Unexpected monetary setbacks affect us all. Financial literacy can help us plan ahead and soften the blow.

 

 

 

VOYAGE TO THE DEEP BLUE SEA

 

“How inappropriate to call this planet Earth when it is clearly Ocean.” Arthur C. Clarke

 

Recently, I needed a diversion to escape the unrelenting noise of pundits trying to explain the election results and its aftermath. Half of the country is predicting the end of democracy and the other half praising the return to a better populist America. I decided to remain silent and let the future unfold.

The corner of my desk was piled high with books I had been reading during the campaign. These political and historical studies defining authoritarianism and defending democracy needed to be temporarily packed away. Following the Inauguration, when the former president returns to action with his wrecking ball there will be plenty of time for comment.

A friend suggested I take up the word puzzle, Wordle, as a healthy alternative. I discovered that, unlike my spouse and many others, my knowledge of five-letter words was limited. Also, my patience for word games was slim.

Instead, I turned to a book that the Financial Times has called one of the best science studies of 2023, The Blue Machine: How the Ocean Works by Helen Czerski. The author is a physicist and oceanographer at University College London. Her writing skills were sharpened as a science columnist for the Wall Street Journal.

Generally speaking, we humans spend most of our days surrounded by land. It is easy to forget that the ocean covers 71 percent of the Earth's surface and contains 96.5 percent of the planet's water. When we check the local weather or air quality, we are not thinking that the ocean regulates climate and is the planet’s greatest source of oxygen.

When we visit a zoo or marvel at the wildlife that surrounds us, we are not remembering that the ocean is home to a more diverse variety of life from microscopic organisms to the 100-foot-long blue whale. When we gaze at the night sky in wonderment, it is hard to believe that humans have explored only 5 percent of the ocean. Many of the species that live there have not been discovered.

The Blue Machine is an excellent book for those looking to escape the emotional impact of the election. It provides an invigorating ocean voyage while explaining how the vast expanses of saltwater operate as “the engine for the earth.”  The physics behind the ocean’s systems are more complex and interdependent than one could imagine.

In the book’s introduction Czerski sets us up for what we are about to read: “This isn’t merely a diverting tale about some salty water. This is the story that defines planet Earth.”

The author uses stories of history, culture, and sea animals to present her scientific points. She explains how water temperatures, salt water, gravity, and even the movement of the Earth’s tectonic plates all interact to keep our planet and its oceans intact. The book is replete with helpful diagrams and illustrations.

I agree with other reviewers that Czerski not only explains how things work, she does so with “poetic awe” that captures the wonder and beauty of the ocean. For example, we know that the ocean intercepts incoming energy from space and prevents it from escaping. Czerski’s eloquent explanation is: “The Earth is just a cascade of diversions, unable to stop the flood of energy but tapping into it as it trickles past. The ocean is an engine for converting sunlight into movement and life and complexity, before the universe reclaims the loan.” Who needs to dwell on Trump’s madcap cabinet choices with prose like that.

The book introduces the reader to the unseen, interlinked systems of currents, ocean walls, and underwater waterfalls that define the ocean. Gaining some basic understanding on what is going on in seven tenths of the planet that is not covered in land was an eye opening and humbling experience.

The last section of the book gives the reader some discouraging news to consider. It is not a topic the author wanted to dwell on. She laments, “I wish so much that I could have written an ocean book that ended with pure celebration…with nothing but a positive exciting future to look forward to.”  Czerski then lists all the events that threaten the ocean.

First, climate change is causing ocean temperatures to rise with alarming speed. Second, billions of pounds of plastics, micro-plastics and nano-plastics, smaller than the dust particles we breathe, are washing into the oceans. The plastics are affecting aquatic species in ways scientists are only now beginning to grasp. Third, excess carbon dioxide we send into the atmosphere is absorbed by seawater. This lowers the ocean’s Ph and impedes the growth of corals and shellfish. Fourth, excessive nutrient runoff, algae, and higher temperatures cause oxygen deprived patches of water. These “dead zones” now cover millions of square miles of ocean. Fifth, the “Atlantic Meridonal Overturning Current” is shifting to potentially catastrophic patterns due to the introduction of meltwater from Greenland’s glaciers and Arctic ice. Lastly, government subsidized and illegal fishing have caused an extreme decline of fish populations worldwide.

While it is tempting to ignore the ocean as “nearly infinite and incorruptible,” it is time we wake up and understand the realities of living on a planet with limits. What this book taught me is that we need to fully understand how the ocean works before we can save it.