Dave Ramsey is a faith-based financial expert and multimedia personality who began his career in real estate. By his mid-twenties, Ramsey had accumulated a real estate portfolio worth $ 4 million. However, a change in banking laws required the recall of several outstanding loans. He couldn’t pay and Ramsey, in a setback, later filed for bankruptcy.
Since then he has developed a common sense debt reduction system and sound financial principles which he followed to regain his own tax base. Its debt-free, slow-growing approach to financial security are central to its multimedia empire.
Ramsey’s website claims 23 million people follow his daily radio show, podcasts, and weekly videos. His team also released 19 national bestsellers. More importantly to him, Ramsey says 6 million families have corrected their financial weaknesses with his plan to build wealth. Its message is one of discipline and hope for individuals, families and small businesses.
Although he promotes a positive stance regarding money management and tax freedom, Ramsey is a vocal critic of cryptocurrencies as an asset class. Is he right ? We will take a look.
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Ramsey is not a crypto fan
During an April 2021 segment of his radio show, Ramsey said that Bitcoin and Dogecoin are “dumb investments” and compared cryptocurrencies to cocaine and gambling. And in a separate radio clip from May 2021, he compared Bitcoin to Lotto, calling it both a “stupid idea” and said he does not encourage anyone to invest in “… highly volatile and unpredictable investments”.
Hyperbole aside, Ramsey encourages a “… boring, methodical… approach…” to wealth creation. He bases this on the results of his survey of 10,000 millionaires. Ramsey believes that “get-rich-quick” programs more often than not lead to realities of “go bankrupt quickly.” His personal net worth is around $ 200 million, so he’s doing something right.
However, some fundamental claims about cryptocurrencies on its website are not correct. Specifically, the following four points are misrepresentations of the cryptocurrency asset class:
- Cryptocurrency is unstable.
- Cryptocurrency has a lot of unknowns.
- Cryptocurrency facilitates fraud.
- Cryptocurrencies have an unproven rate of return.
Why Ramsey Gets Wrong About Crypto Investing
Each of Ramsey’s claims must be addressed using the cryptocurrency with the longest experience – Bitcoin. Bitcoin is a useful substitute for the entire industry as cryptocurrencies appeared in 2009 after the publication of the Bitcoin white paper, introducing the idea of Bitcoin and its use in the real world.
Claim 1: Cryptocurrency is unstable
Bitcoin is volatile, but it is not “volatile” as the mainstream media shows. Ramsey reinforces this negative narrative when he continues to compare Bitcoin to gambling, soccer betting, and the lottery.
While cryptocurrency can be characterized as a speculative asset class, it is not Three-Card Monte. In fact, a new study from Fidelity found that seven out of 10 institutional investors plan to buy crypto over the next five years. This validates the cryptocurrency as a viable investment. You don’t see “smart money” chasing Powerball.
Claim 2: Cryptocurrency has a lot of unknowns
Every aspect of life – including investments of all kinds – has “unknown” elements, so Ramsey is not completely wrong here. However, his website goes beyond this second claim when it states, “Only a small percentage of people in the world really understand the system and know how to make it work. Ignorance makes you vulnerable. It sounds a bit hyperbolic, fear-inducing and unnecessary. Just because something is complex doesn’t mean it’s worth trying to find out more. There are many valuable and informative crypto resources available to help you do your research and make your own investment decisions.
Claim 3: Cryptocurrency Makes Fraud Easier
Cryptocurrency fraud is nowhere to be found on the FBI’s list of the top 30 most common types of scams. This is a tired media trope that is frequently cited for instilling fear, uncertainty and doubt – a crypto phrase commonly referred to as “FUD.”
In reality, cryptocurrency transactions happen on an open digital ledger that anyone can see and track by IP address. Law enforcement officials can visit websites that publish all blockchain transactions in the past and present. They can see where funds move and countries where individuals – especially criminals – make deposits. For this reason, parts of these funds are often recovered or frozen. Anyone with an internet connection can view these blockchain transactions by Googling “Bitcoin blockchain”, making it difficult to conceal crypto funds. Blockchains are ideal for moving crypto funds, but these movements are neither hidden nor completely autonomous.
Ultimately, cryptocurrencies don’t make it easy to cheat.
Claim 4: Cryptocurrencies have an unproven rate of return
Bitcoin has a 12-year history of return on investment (ROI) performance. Over the past 10 years, Bitcoin’s constant annual growth rate (CAGR) has exceeded 130%, which is 6 times more than the closest asset class. Here’s the comparison to other investments, courtesy of casebitcoin.com:
Despite my disagreement with Ramsey’s claims against cryptocurrencies, I agree that no one should invest more than 5% to 10% of their net worth in some type of speculative asset. Potential investors should also do their own research before paying a dime.
That said, the underlying fundamentals supporting Bitcoin as a long-term store of value have never been stronger. This is because central banks are authorizing the creation of more “real” money than ever before to supposedly stimulate growth. Treasury departments print billions of new dollars and legislatures spend them.
This artificial currency cascade is flooding the markets and pushing inflation up. The US Department of Labor reported a 5.4% increase in inflation in June, on top of a 5% increase in May. None of those numbers include double-digit percentage increases in the price of gasoline, used cars, or the value of existing homes since the start of the year.
Not only does inflation increase the cost of the goods we buy each day, it erodes the value of what you are trying to save for rainy days. Due to the fixed amount of Bitcoin coins capped at 21 million, this is a truly scarce resource and arguably a better hedge against inflation than gold.
While Ramsey may believe that investing in Bitcoin is a gamble, it is a much riskier gamble to outright dismiss cryptocurrencies as a viable investment option and a store of value for a small portion of your wallet. .