Celebrities like Reese, Gwyneth and Matt (Damon) are hyping crypto. Here’s why you should be skeptical.
(Photo: Rocco Spaziani/Archivio Spaziani/Mondadori Portfolio via Getty Images)
It’s a new year and so far the biggest celeb trend is not ditching Spotify over Joe Rogan or self-flagellating jewelry (sorry Megan Fox), but cryptocurrency. In just the last couple of weeks Matt Damon and Reese Witherspoon have lent their considerable star power to the crypto cause (Gwyneth was stumping for Bitcoin back in December—ever the avant-garde). So yes, clearly, this formerly niche fintech phenomenon has gone mainstream. But do you really have to pay attention? What is cryptocurrency exactly? And why are so many celebs saying that now is the time to invest?
First things first, what is cryptocurrency? (Asking for someone who doesn’t know their Bitcoins from their blockchains)
That someone is not alone. “So many people are talking about crypto these days, but far fewer understand how it works,” says Bridget Casey, a Calgary-based financial advisor and creator of the financial literacy website Money After Graduation. (Note that men are a lot more inclined to pretend they know about things, so the wannabe techbro from your office may not know what he’s talking about either.) In the most basic terms, cryptocurrency is digital currency. But unlike Canadian dollars or Japanese yen or other traditional units of money, cryptocash is decentralized, meaning it’s not controlled by governments and central banking institutions. Instead it runs on a blockchain, which is basically a digital ledger (read: inalterable record) of transactions that verify who owns what. Every type of cryptocurrency (Bitcoin, Ether, Dogecoin, etc.) has its own blockchain which is maintained by many independent operatives known as miners. Read here for a breakdown of how that works, but for our purposes, just know that cryptocurrency started as the currency to pay the people who run the blockchain, but has since become a valuable commodity (like oil or gold) to buy and sell.
And why are so many celebrities going cuckoo for crypto these days?
No question the list of Hollywood types shilling for the various digital tokens and exchanges seems to be growing by the day: Kim Kardashian, Snoop Dog, Tom Brady, Serena Williams, the guy from The Bachelor. The list goes on (and on), and in some ways the answer is obvious. Celebrity endorsement deals tend to include big fat paycheques. “For Matt Damon, promoting Crypto.com is just taking a brand deal,” says Casey. Where it is different, she says, is the assumed risk: “Spending $100 on one bottle of tequila isn’t going to cost you your life savings, but purchasing an altcoin that may lose its value overnight could.” Point being: it is not a good idea to take financial advice from someone who learned about risk assessment by starring in Rounders. “The problem is that these celebrities have money to throw around and can afford to take massive risks,” says Casey. Their fans—not so much. Particularly in a space that is currently largely unregulated. Which, by the way, is why celebrities are allowed to make these endorsements in the first place. “A traditional financial institution like a bank would not be able to hire a famous actor to promote an extremely risky program because they are bound by a fiduciary duty to act in their customers’ best interest.” Casey explains. Because cryptocurrency is not recognized as legal tender in Canada, basic consumer protection rules don’t apply.
Why would Reese Witherspoon recommend something so risky? She makes such great book recommendations.
Witherspoon’s story is a little different in that she hasn’t been hawking for a specific currency or exchange (like Matt with Crypto.com or Gwyneth with TeraWolf). Instead she has been tweeting about crypto technology more generally. In keeping with her brand, Reese is pushing a #womeninfintech agenda. She’s hot on currency but also NFTs (unique digital files that also exist on the blockchain and are selling for big bucks these days, but are not the same thing) and the metaverse (ie, the digital universe). And while some are questioning if she is in fact receiving a paycheque for her boosterism, the notion that women need to pay more attention to this world-changing technology is worth consideration. No question there is a significant crypto gender gap. And no surprise either, says Moon Jérin, an associate at the UCL Centre for Blockchain Technology: “How many women do you know who were taught to manage their own money? Or how to earn money besides making a paycheque and saving?” Jérin believes that the bro-ishness of tech culture may have some women feeling like this space is just not for them, but in fact, she says “this could be an opportunity for women who are prepared to do their research and maintain reasonable expectations.” Reese is sending a similar message, but before you go investing in cryptocurrency the same way you devoured Where The Crawdads Sing (she does make some great book reccos), remember that Legally Blonde isn’t going to be there to plead your case when the market tanks. Or when the exchange you’re trading on gets hacked (which is what happened to Crypto.com in January). Or when the cool new currency you shilled to your 280 million Instafollowers turns out to be the subject of a lawsuit (cough cough, Kim Kardashian).
I’m still a bit confused though. Is cryptocurrency the same as Bitcoin?
Yes and no. Bitcoin is a type of cryptocurrency, but it’s so dominant in the space that it’s often used as a shorthand—the same way we still call inline skates Rollerblades or tissue Kleenex. As well as being the buzziest, Bitcoin was the original cryptocurrency, invented in 2009 by a dude (who may actually be a bunch of dudes) who called it a peer-to-peer electronic cash system. This was all in the aftermath of the 2008 financial crisis, which exposed the flaws and corruption inherent in traditional financial institutions, and the idea was that Bitcoin could cut out the middleman and create a more democratic system.
Is that what happened?
That depends on who you ask. On the one hand, cryptocurrency is beloved by libertarians who still buy into its original mission of putting money in the hands of the people. On the flip side though, many of these coins have become a vehicle by which a small group of people (often people who had money in the first place) have gotten absurdly wealthy. Data from 2021 reveals that 0.01 percent of all Bitcoin holders control 21 percent of all Bitcoins, which doesn’t sound much like a great democratization. “There are definitely a lot of strong and opposing opinions on this question,” says Takara Small, tech journalist and host of the CBC’s A Death in Cryptoland (a must-listen for anyone who likes their fintech with a side of murder mystery). “What’s funny is that the face of crypto is a young white man, but we’re seeing high rates of engagement from women and people of colour.” In theory, cryptocurrency should be a great opportunity for groups who have been traditionally underserved by standard banking institutions, and that is certainly possible. At the same time, the last couple of years have seen these same groups experience disproportionate economic hardship. “You have people who are eager for advice on how to secure their future financially,” says Small. And then along comes Matt Damon saying that maybe you’re not making a fortune because you’re not being brave enough. “The message is if you want to make it big you’ve gotta take a risk, but it’s a risk a lot of people can’t afford.”
But can’t the risk pay off? I keep hearing about all of these Bitcoin millionaires.
That is exactly the point. We hear all of these crazy tales of fortunes gained, seemingly and sometimes literally overnight. We hear a lot less about the losses. Even though this scenario is far more common, especially if you’re someone who can’t afford to ride out a significant dip. In just the last few months Bitcoin went from an all-time high in November 2021 (a single Bitcoin was worth more than $80,000 CAD) and then dropped more than 40 percent to where it’s at today.
Crypto has been around for more than a decade. Why is this all happening now?
See: Aforementioned massive market gains fuelled by hype that fuelled demand that fuelled hype that fuelled demand and so on until the Bitcoin bubble eventually bursts. It’s no different from real estate or the dot com boom or Beanie Babies, says Small. (“Remember when they were going for 300 percent of their value and everyone thought we were going to be trading Beanie Babies after the apocalypse?”) The problem is that until the collapse comes, you will have people thinking they are missing out on the next big thing and making bad decisions because of it.
Okay, so assuming I am not a super rich celeb who can afford to lose a million here or there, is this just something I should avoid altogether?
That is a decision that needs to be considered in the broader context of your personal financial situation. Another factor worth noting is the environmental impact of the cryptocurrency mining process, which uses more electricity than many countries. That said, both Casey and Small agree there is absolutely a fiscally responsible way to dip a toe (read: no more than five percent of your investment portfolio) into the enticing waters of crypto. Just keep your eye out for sharks which, in this case, may look a lot like your favourite action and romcom stars.
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