The ‘where Lambo’ crowd go gaga as bitcoin powers on through $100k

The ‘where Lambo’ crowd were in rapture this week as the world’s dominant cryptocurrency, bitcoin (BTC), finally breached the USD100 000,00 level. Disciples of the digital gamble had United States (US) President elect Donald Trump to thank for the latest surge, as the market welcomed his preferred candidate to head up the US Securities and Exchange Commission (SEC).

Lapping up the paper profits

South African investors were crowing about the announcement too, lapping up the paper profits from the latest push higher, and no doubt blocking any thoughts about how much more they will owe the South African Revenue Services (SARS) when they finally convert this paper profit into cash in hand. Your writer senses that millions of locals are riding the coattails of the current crypto craze. Case in point, local trading platform Easy Equities posted a LinkedIn ‘congratulations’ reminding its million plus accountholders that BTC was trading at USD102 500,00 and that their account allowed trades in the currency 24-7: “You can buy and sell anytime.” 

Regulation, and the threat of tougher regulatory oversight, remains a major influencer of cryptocurrency prospects. Ergo the immediate bump in bitcoin when Trump flagged Paul Atkins to head up the SEC, which regulates cryptocurrency in the world’s largest economy. News agency CNN offered context by attributing the new record price to “administration picks seen as holding the keys to ushering in crypto-friendly policies when Trump takes office in January 2025.” They described Atkins a “a crypto advocate and former SEC commissioner” who would “regulate cryptocurrency with a lighter touch than Gary Gensler, who [presently] leads the commission…” 

On 5 December 2024, Bitcoin was up 130% for the year and more than 1200% higher over five-years. It boasts a return profile that gives financial advisers sleepless nights because it flies in the face of their oft-repeated warnings about being wary of scams that promise excessive returns. Your writer has repeated the “if it sounds too good to be true, then it usually is” warning countless times too. And yet legitimate investments in bitcoin, or any of dozens of mainstream US listed firms have shot the lights out in recent years. The so-called Magnificent Seven are a case study in investor exuberance and the windfall on offer from riskier ‘bets’ in financial markets. 

Triple digit gains and much, much more

Technology firms Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla have underpinned massive gains in market capital in major US indices, spanning multiple years. Each of these shares has delivered triple digit gains over five years with the top returns coming courtesy Nvidia (+2653,49%) and Tesla (+1498,62%). Even the laggard in the group, Amazon, is up 149,1% over the period. If you had invested R1 000,00 into each of these shares five years ago, then your R7 000,00 initial ‘pot’ would be worth R51 015,10 today for a CAGR of 48,77%. Assuming you had perfect hindsight, you could have put the entire R7000,00 into Nvidia and multiplied your wealth 26,38 times. 

So, is the promise of stellar returns ‘dead in the water’ when it comes to avoiding scams? Not really. While legitimate investments can and do deliver spectacular returns, as demonstrated by Nvidia’s five-year rise, these gains occur over time, and they come with risks. Part of the protection you enjoy by investing through a reputable stockbroker is that they should not be soliciting your investment on the promise of return, even if it is realistically pitched. Any promise of a staggering financial market return should set your scam radar pinging. 

Another common thread across the financial scam universe centres on ownership and the misdirection of your cash. You should pay careful attention to the accounts that your funds will ‘land’ in following your investment. Legitimate stockbrokers use segregated accounts or custodial services to ensure your money is kept separate from other investors’ funds, and that it is easily traceable. Scams often divert funds to personal accounts or use vague terms like ‘pooled investment’ accounts; when things go south, your cash ends up being mixed up with everyone else’s, assuming there is any cash left for the curators or regulators to salvage. 

Following the money trail

If you bought shares in the Magnificent Seven through a reputable broker, then your capital would have moved from your transaction account into a regulated financial market, and you would have been able to sell out of that position and free up the funds at any time over the past five years. If you invest (sic) with a con artist who uses the stellar returns on technology sector shares to support his excessive return promises, your money is unlikely to find its way into a legitimate financial instrument. When you sell to lock in scam profits, there is always some or other reason why your capital cannot be returned to you. 

Aside from the return promise, the first red flag in identifying scams is a lack of transparency about where and how your money will be invested. Financial product providers are required by law to disclose clear, verifiable information about their underlying assets, operational models and the risks involved. For instance, when investing in the Magnificent Seven or any regulated stock, you can trace your funds directly to the purchase of shares that are publicly traded and regulated by securities commissions. Scammers, on the other hand, often rely on vague or overly complex descriptions to obscure how your money is used. 

Another safeguard in legitimate investments is the presence of credible intermediaries and regulatory oversight. When you buy shares in a technology firm or hold cryptocurrency through a reputable platform, the broker acts as a regulated intermediary. They must comply with strict guidelines set by the relevant financial sector regulator to ensure that your capital is safe, and transactions are transparent. Scams operate outside the regulatory net, though they frequently misrepresent having the necessary licenses to give you false assurances. 

Beware the promise or guarantee

Any return promises or guarantee should set warning lights flashing. Scammers typically promise guaranteed returns, which is an oxymoron in the world of investing. Genuine financial advisers or brokers will always stress the inherent risk-reward relationship and never assure you of outcomes. PS, there are some structured products that offer sensible return guarantees, but the financial institutions offering them make use of advanced financial instruments to sculpt the returns being offered. 

A final ‘tell’ that you are being scammed relates to pressure tactics being deployed to make you invest quickly. The scammer will claim that the opportunity is “one time only” or that you have to invest immediately or lose out on the fantastic returns on offer. Legitimate opportunities, such as investing in bitcoin or the Magnificent Seven do not require high-pressure sales tactics. A responsible adviser or broker will give you ample time to perform due diligence, ask questions and weigh your options. More importantly, your financial adviser will ensure that any highly speculative investment is made with money you can afford to lose. 

The hype surrounding cryptocurrencies and fast-moving technology stocks has created an additional challenge for everyday investors. Social media creates affordable platforms for all and sundry to masquerade as investment experts, punting all manner of questionable opportunity. You should approach claims made by Instagram and YouTube influencers about stock market opportunities with scepticism; the flashy lifestyles and ‘bling’ they showcase are often not the result of market investing. 

Influencers are peddling influence, not gold

While some influencers may have struck gold by betting on the right crypto trends, the majority derive their wealth from monetising their large followings through ad revenue, sponsored content and partnership deals. In many cases, the image of financial success they project is less about smart investing and more about leveraging their social media presence for profit. 

Speaking of gold, that is the asset that US Federal Reserve Chair Jerome Powell most likens bitcoin to. He recently described bitcoin as “a speculative asset” with similar qualities to gold. At a conference, late November 2024, he dismissed the ongoing cryptocurrency hype saying that bitcoin was not a competitor for the US dollar, but rather for gold. The precious metal has also been on a bit of a run, rising by around 30% over the past 12-months. 

Today’s lesson for investors is this. While high returns are possible, they are never guaranteed, and they come with proportional risk. Legitimate investment opportunities are built on a foundation of transparency, regulation and accountability; anything less is a risk not worth taking. And remember, someone offering to double your cash in less than a month is actually peddling an annual return running into hundreds of thousands of percent. 

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