UNO Magazine: Big Bet

The following story appeared in the most recent issue of the UNO Magazine, which highlighted the efforts being made by UNO alumni, faculty, staff and students to promote health and wellness. Read the magazine online as a Flipbook or download a PDF.

Looking to score big with an investment in bitcoin or other form of cryptocurrency?

A trip to Las Vegas might serve you just as well.

At least that’s what Olivier Maisondieu Laforge seems to intimate. An associate professor of finance, banking and real estate at UNO, Maisondieu Laforge is asked frequently about cryptocurrencies.

He usually provides a simple response.

“I generally tell them, ‘Are you ready to lose it all?’” he says.

“If you’re comfortable with losing it, and you know this is pretty much a gamble, and you act like it’s a gamble, then go ahead and do it.

“But if it’s your paycheck, I would say no.”

Disruption is coming

Maisondieu Laforge teaches in a field that’s on the cusp of technology-generated disruption — sort of like what Amazon did to retail commerce or Facebook and Twitter to traditional media. He can look in his classroom and see students who may rarely hold a dollar bill in their own hands, and not because they’re impoverished.

“Almost all of their money transactions, if not all of them, will be digital,” he says. “There won’t be any paper money handed around. There will be a major global cryptocurrency.”

Maisondieu Laforge says the topic of cryptocurrency arises regularly in his classes and in general conversation. El Salvador made news late in the summer when it made bitcoin its national currency, becoming the first nation to adopt the cryptocurrency as legal tender.

For now, according to Maisondieu Laforge, cryptocurrency remains more of a speculative investment than a way to make day-do-day purchases and transactions. He bought $700 in cryptocurrency himself out of professional interest. It grew to about $1,200.

“It’s not going to change my lifestyle,” he says. “It is unlike anything that’s come before. It has a very low correlation with any existing asset pool. They thought it would be like gold, but then they went in opposite directions.”

You’re already using digital currency

In a sense, we all use digital currency every day.

“At the end of the month, your bank account goes up by a number and then you push a few buttons and it goes down and your mortgage gets paid and your bills get paid,” Maisondieu Laforge says. “You don’t actually see any paper.”

The biggest difference with something like bitcoin, he says, is who gets to print it and why. Traditionally, central banks and governments controlled the issuance of money, meaning decisions on how much to put into circulation were made by human beings who seek a balance between price stability and economic growth.

“That’s the good news,” he says. “What’s the bad news? Humans get very excited about printing money and then you end up with Venezuela.”

A country that the International Monetary Fund in October estimated would have an inflation rate of 5,500% by the end of 2021.

The difference with bitcoin is that it’s not backed by a central bank and the supply can’t be increased or decreased depending on the prevailing economic winds. The supply is tied to the development of the computer program, or with bitcoin through a process called “mining” in which new bitcoin is released into circulation. That makes cryptocurrency less adaptable to the long-term changes in economic growth.

That’s something that will have to be addressed to make cryptocurrency more than a niche product or novelty.

“In the short run, it’s a good thing,” Maisondieu Laforge says. “In the long run, it’s a terrible thing. Because if I look out over the next 10 years, I am concerned about crazy people overprinting money. But if I look out over the next 200 years, the economy will grow, we will need a larger money supply and whatever digital current exists today will not fill that need.”

Here to stay

Maisondieu Laforge believes digital currency will be around for a long time, although he’s not as sure about bitcoin. It’s possible, he says, said that bitcoin is to cryptocurrency what Myspace was to social media: one of the first but not necessarily the best or the one that endures.

“When it was created, it was a wonderful proof of concept, but it has built-in flaws,” he says.

One problem, he said, is the amount of electricity and processing power it takes to compute and verify a transaction. The other problem with bitcoin, he adds, is the anonymity associated with the currency.

“It sounds great until you forget your password,” he says. “If I had my bitcoin wallet and I forgot my password, I’m broke. If I have money in my local bank and I forgot my password, I get a new password.”

Right now, 1,000 different cryptocurrencies are trying to find the right formula, from bitcoin with its public ledger known as blockchain, to stablecoins, which are a type of cryptocurrency pegged to fiat currencies like the dollar or backed by certain assets.

Both have shown extreme volatility, with Security and Exchange Commission Chairman Gary Gensler comparing stablecoins to poker chips and raising the specter of systemic financial risk if there’s a rush to redeem them, a sort of crypto bank run.

There’s a lot to sort out, and a need for a buyer-beware mentality, but Maisondieu Laforge says the future of money won’t look like the past or even like it does right now for those in his classroom.

“Paper will become one of those antique things that you show people, that you used to trust this paper as money,” he says. “They’ll be like, ‘why?’”