Have you heard the hype surrounding bitcoin and crypto-currency?  Been tempted to buy any?  Feel like you should “invest” but don’t know where to start?

This week a friend emailed asking for advice, should he invest in Crypto?    He asked me to talk him out of it!  He said “Now FOMO (fear of missing out) is running amok and Bitcoin is surging. My friend keeps telling me “you’ll buy at $100K, you’ll buy at $100K!””

Alan Donegan Bitcoin hat, avoiding investing amid the bitcoin hype

Alan got given a bitcoin hat but can he avoid the hype and avoid investing!

So many people seem to be talking about it.  Millennial Revolution are mining it in their Airbnb’s, the Escape Artist is writing about it and the highs and lows.  It seems to be in the press in different ways every single day.

With all the hype I wanted to stand up and give a different opinion.  These are my reasons why I don’t invest in crypto and won’t tell anyone to do it either.

If you are looking to let go of the feeling of “I should invest in crypto” or you want some balance to the reasons for investing then this article is for you.  If you love crypto and don’t like to be challenged you aren’t going to like this one!

5 reasons to avoid crypto-currency

​Here are the 5 main reasons why I don’t invest in crypto currency at all and have steered clear since the very start.  My hope is that this is going to alleviate some of the FOMO around crypto and help you to feel more comfortable with your investment strategy.

Katie and I created a video with the 5 reasons not to invest in Crypto Currency.  If you don’t enjoy reading just watch the YouTube Video here!

What do you think?  Is now the time to invest in Crypto or should we avoid?

Enjoy the video and article!

1. Crypto-currency feels like a giant ponzi scheme


Crypto currency feels like a giant Ponzi scheme to me.  What is a Ponzi scheme I hear you ask?

Here’s the Oxford English Dictionary definition – Ponzi Scheme – noun

  1. a form of fraud in which belief in the success of a non-existent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.
    “a classic Ponzi scheme built on treachery and lies”

Now in many ways it is not a Ponzi scheme as these are legitimate ventures but the part about early investors getting wealthy and that money passing along feels so right!

In a Ponzi scheme someone persuades lots of people to invest, the early investors get rich and then eventually the people who are last to the game loose all their money as the thing collapses.

Now I am not saying crypto-currency is going to collapse.  I feel like it is here to stay, however I do feel that the currency’s that aren’t solving problems, like Bitcoin, are only worth whatever the next person is willing to pay.

People “invest” into this thing and then persuade more people to invest in it.  The more people that put money in the more the price goes up.  Then when the price has gone up sufficiently,  the people who started sell theirs and then the price plummets leaving those last to the party out of pocket.

So many people are telling us to invest, invest, invest and the fervour and pressure is huge.  Why do so many people want me/us to invest in Bitcoin?  Surely if it was a genuinely good investment they would be wanting to keep it to themselves?  Why are they screaming at me and the rest of the world to get involved?

The whole thing feels like a giant Ponzi scheme (to me) at the moment.  There is some incredible underlying technology and I think something like this will shake up the way we move money and trade in the future.  Investing in Bitcoin just because everyone else is and it keeps going up isn’t a good reason.

2. There is no underlying asset

Crypto currency has no underlying asset.  You are buying a currency.  If you buy property there is a physical underlying asset in a building or house.  That building or house is then rented out to generate a return on your money.  You own a physical asset.

If you buy a stock or share there is a physical underlying asset.  Let’s say you buy a share in Apple.  You own part of that business with offices, incredible people and products they sell. You actually own something that generates a profit and pays you in terms of dividends and capital appreciation as the company grows.

If you own a global Index fund like the Vanguard FTSE Global All Cap Index fund you own a small part of 7000 companies around the world and all those companies are now working for you.  They work to generate profits, become successful and then reward the shareholders by paying dividends.  You own businesses.

Investing in Crypto Currency is investing in a virtual currency that you can hopefully sell later for more to someone who believes it is worth more.   To me this is risky.  It is like me thinking “ummmm, the Colombia Peso is going to be the next big currency so I will take all my money, buy pesos and hope that the country does well and I can sell it to someone else who thinks it is worth more later!”

Would you gamble your hard earned money on the Colombian Peso or the Thai Bhat?  I sure wouldn’t!

In most cases crypto-currency has no underlying asset and for that reason alone “I am out!”

3. It’s speculation not investing


Investing in most crypto currency is pure speculation.  There is nothing working for you underneath or growing at all.  You are just hoping it will be worth more in the future.  The stories of bitcoin millionaires inspires us to wish that was us and put our money in as well which helps people who invested earlier to become wealthier!

What does speculation actually mean?

According to the dictionary:
2.investment in stocks, property, etc. in the hope of gain but with the risk of loss.

People are buying virtual coins in the hope that they will increase in value and they have thus far!  But as every single investment advert tells us “past performance is no guarantee of future returns”

If you invest in stocks and shares there are two ways you can make money, capital appreciation and dividends.   Capital appreciation happens as the company is more successful, increases profits and sells more and dividends happen each year if the company makes money,  it shares the profits with the share holders.

With most crypto-currency you only have the one way of making money which is hoping that someone else will buy it from you for more money than you bought it for.  This is pure speculation.

Now I know there are some currencies doing some cool things with digital arts and changing the way industries work but for most people they are just buying a coin and hoping it goes up!  It is similar to buying gold krugerrand.

This is pure speculation and not a great strategy for long term financial success.

4. I already have exposure through index funds

As you probably already know Katie and I are huge fans of index funds and have 76% of our net-worth invest in a globally diversified Vanguard index fund.  When we have sold our properties then this will increase to 95% with 5% held in cash for emergencies.

If you want to know what an index fund is then read this first. What is an index fund?

I am not smart enough (or have the inclination) to spend the hundred of hours it will take to truly understand crypto-currency to feel confident investing in it and even if I didn’t I wouldn’t gamble my fortune on one currency! This stuff is complex and challenging to understand and most people who invest in it don’t truly understand it,  they are just buzzed by the hype.

A couple of months ago I was sat around a pool in Oaxaca, Mexico with friends when we were joined by someone they had all met the night before.  He was introduced as being financially independent through crypto-currency.

I was intrigued.  I was SUPER curious and started asking question.  How did you get started investing?  What are the main ones you are investing in? How does it work?  He told me he gets 18% interest paid to him on his investments.  “WOW” I thought.  That is incredible .  The stock market has returned 10% – 12% over the long terms so that is amazing.

I wanted to understand where this interest comes from.  So I asked:
“Who is paying the interest?”

It is super complex” he replied

“I am genuinely interest, who is paying the interest and how does it come to you?”

“I could get the technical specs out for the coin if you want but it is really difficult to understand” he replied putting me off again

Either he didn’t know or he genuinely thought it was too complex for me to understand.  After being fobbed off several times I stopped pressing and lost interest.

If it really is too complex for me to understand then I shouldn’t be investing in it.  I should leave it to the professionals.

Through the index funds I own, I already own part of several companies that are investing in crypto-currencies.  I own shares in Microsoft, , Goldman Sachs, Nasdaq, PayPal, Mastercard, Visa and more and everyone of these companies has a position in Crypto.

Rather than learning all about crypto I am just going to invest in the largest companies with the smartest people that are already trying to figure this out.  I am going to see a portion of their upside in crypto through capital appreciation in my shares and dividends when they are successful.

I don’t need to gamble directly on crypto as there is a much safer way to do it through index investing.

5. You are trying to make up for lost time

Jeff was involved in the the equitable life scandal where 900,000 people lost their life savings and pensions in the UK.  Jeff lost his pension just like many others.

He was shocked that his life savings evaporated and he was behind now on his finances.  He started to take increasing risks to try and make up lost ground.  He invested in riskier and riskier stocks and investments because he was running out of time!

Those risky investments turned out to be terrible investments and he lost even more leaving his family in financial difficulties.

Jeff was trying to make up for lost time by taking on riskier and riskier investments.  I can understand why he was doing it, it makes complete sense but it is all motivated from fear of being left behind, fear of not having enough and by trying to make up for past bad decisions.

This is not a good strategy for long term success.  It is similar to thinking you don’t really have a chance so you might as well go to Vegas and put it all on black and hope for the best! DANGER!

If you feel like you are behind, if you feel like you need to make up for lost time, if you feel like there is no chance for you because you found out about financial independence too late then you are in danger of taking risks that could sink your ship.

A couple of thoughts for you before we tie back to crypto-investing:

  1. Is it really too late?  Have you used a retirement calculator and checked your numbers?
  2. Have you been through your spending and worked out how to reduce it but maintain happiness?
  3. Have you worked through increasing your income
  4. Have you gone through the maths with someone who truly understands index investing?
For help getting in control of your finances watch our beginners guide to personal finance.

Before you go crazy and invest everything in a high risk investment watch our guide to taking control of your finances and work out your possible retirement date based on maths.

​I feel as though there is an entire cohort of people who are investing in crypto-currency because they need something riskier as they don’t believe the returns of index fund investing are going to get them to where they want to be.

If you are wanting to invest in crypto-currency to make up for lost time I implore you not to.  Work through the first steps to financial independence, reduce your expenditure, increase you income and use a retirement calculator with your new numbers to see if you can still make it.

Gambling on crypto because you feel behind is a recipe for disaster.

When you could invest in Crypto?

The are a few situations I feel that crypto-currency could be a good investment.

  • You are already FI and have money to burn – if your finances are already sorted and you want to get involved and it isn’t going to jeopardise your future if you loose everything then go for it!
  • It is a tiny percentage of your net-worth – if you want to take <5% of your net-worth and put it into higher risk investments then go for it.  Just have most of your net-worth in more stable long term investments that are going to look after you in the future!​
  • You don’t care if you get your money back.  If this is fun money and you are interested then go for it.  Don’t risk the nest egg!
  • You have time and energy to burn learning about it and you are genuinely curious.  If you are really inspired by crypto and want to learn about it then go for it.  Learn, read and develop your ideas.  Then invest a small amount <5% of your networth

My crypto strategy

Avoid crypto and buy index funds.

I mean that is it.  What else do I need to say.  I hold no crypto and won’t be unless something or someone can present a strong argument for them.  I am open to changing my mind, things develop and change and so will my thinking but until that happens I will be avoiding crypto and buying index funds.

If you are interested in how Katie and I think about investing then start here with our guide to getting going. 

Let the abuse in the comments begin lol!

I hope you found the counter argument to the hype in the media useful and good luck in everything you are doing.

Happy Wednesday



Who will have the last laugh about investing in crypto? I have no idea!
Also, if you’re interested in some more crypto content involving me, to the right of this text is an appearance I made on the “Earn & Invest” podcast! Listen along as Barney Whiter, Jen Smith, and I partake in the Crypto Smackdown!

Join the Donegan mailing list

Leave A Comment

Related Articles

  • Blog, save and invest

    By Published On: September 13, 2023

    You might be thinking "Not another crisis?! We've had the Ukraine war, Covid and the cost of living crisis. I don't want to think about another crisis!" Maybe personally you've had a mid-life existential crisis to add to the mix! And now I'm telling you we have another crisis on our hands? What on [...]

  • Blog, change to page, save and invest

    By Published On: July 15, 2023

      Katie and I had a meeting with a major investment firm (name starting with P and ending in "Bee") about their service.  We were shocked. The person we spoke to told us how their customers are auto-enrolled. He said: "There's a default setting for people that don't choose a plan for themselves" When you're older [...]

  • Blog, change to page, save and invest

    By Published On: May 28, 2023

    When Katie and I ran the second Rebel Finance School we had over 450 people attending and one of the questions we got asked the most was about ESG funds.  Should we invest in them?  What are they?  Do you recommend them?   Let's start with what ESG means; it stands for Environmental, Social, Governance.  The [...]