Author’s note (August 22, 2019): I came upon this article I wrote early on in recent days, and would like to add that I am considerably less enthused now about cryptocurrencies than I was when I wrote th9s article- as I hope we all are.
If students investing in crypto have taken a lesson, I hope they have realized that cryptocurrency prices are widely manipulated and that many of the projects, including Bitcoin, bear a strong resemblance to Ponzi and pyramid schemes.
News that young students are using part of their student loans to invest in crypto markets has caused a flurry of response across news platforms and social media since the story was first reported March 22nd.
A yes/no survey by The Student Loan Report found that 21.2 percent of 1000 students receiving loans had used part of these funds to invest in cryptocurrencies such as Bitcoin.
The news has been largely condemned among mainstream commentators. Ancient-looking detractor John Crudele of the New York Post has written.
“We all know that bitcoin and their crypto brethren are really bitcons,” fueled by “the coolness factor” and, “…on their way to zero.
Oh yeah, a lot of that borrowed money comes from the federal government. Taxpayer money. And once this scam is over and bitcoin are worthless, those same students dabbling in crypto-assets won’t be able to pay their debt.”
I don’t know how long it’s been since Mr. Crudele was a student, but I can think of worse examples of student squandering of funds.
The idea that students taking part of their borrowed money to invest in crypto could in any way be a good thing has escaped most commentators, but there are many ways to interpret this 22% figure.
Could this be a creative response to the increasingly challenging financial climate in which these young people live? Gen Next and Gen Z have both lived through or felt the repurcussions of the Dotcom and housing crashes. Costs have outpaced wages.
Tuitions have risen 1,100% since 1980 (US Bureau of Labour Statistics). According to Student Loan Hero, the average American student graduated $37,172 in debt in 2016, up six percent from the previous year. Law and medical students incur $140,616 and $161,772 of debt respectively before they even enter the workforce.
Can we really blame 22% of students for wanting to do something with their money other than dig a hole?
US Federal Reserve chairman has stated to the Senate banking committee that student loan-indebtedness may even threaten the health of the US economy;
“As this goes on and as student loans continue to grow and become larger and larger, then it absolutely could hold back growth.”
Could young people’s interest in crypto, one of the hottest investment sectors currently, be something other than just foolish or trendy?
The young are not the only ones interested in this new (and risky) asset class.
Speaking March 15th, 2018, at The Economic Club of New York, heavily Bitcoin-invested tech billionaire Peter Theil compared Bitcoin to gold, said it is good as a store of value, and said,
“I would be sort of long on Bitcoin and neutral to skeptical on just about everything else.”
“I’m not sure that I would encourage people right now to run out and buy these cryptocurrencies…(but) probability-weighted, (Bitcoin) is good. There are a lot of deeply crazy, unhealthy elements…at the same time it strikes me as deeply contrarian,” said Theil.
Cryptocurrencies and tokens are innovations in finance evolving almost as fast as the tech they underwrite. Risky ICO models are now being challenged by new, arguably better models such as the DAICO (Distributed Autonomous Initial Coin Offering) a funding construct recently put forward by Vitalik Buterin, who invented the cryptocurrency Ethereum, second only to Bitcoin, in 2013, when he was 19 years old. (Buterin received a Thiel Fellowship Award in 2014).
The youth of today understand tech better than most of us; it is a language they speak. If we listen to rather than condescend to them, we might learn something. If they get investing skin in the game early, learn from their mistakes, invest partly in Bitcoin instead of prodigiously in beer, they might even pay off their loans and then some.
“You are supposed to learn something in college,” bellows Crudele.
I agree.