Date: 09/14/2021
Author: Mr. X
If it seems too good to be true, it usually is. Early Monday morning, the cryptocurrency market lit up with a report that Walmart [WMT] was going to be accepting payments in Litecoin (LTC). Right off the bat, something seemed off.
Why Litecoin? It’s not much different from Bitcoin in terms of the way it operates, except it processes a “block” of information more quickly and is more difficult to mine. Still, it’s hardly revolutionary.
This should have caused people to question why Walmart would pick a relatively obscure cryptocurrency rather than Bitcoin, the cryptocurrency with the largest market capitalization, institutional investment, and name recognition.
Nonetheless, mainstream media fell for it. They always fall for it.
Investors were treated to Reuters reporting on the fake news release. From there, it rapidly spread on social media and on mainstream financial websites.
Of course, it was rapidly deconstructed. Think of the chans, Twitter, and social media sites as one vast decentralized intelligence agency. There is a lot of junk and false reporting. However, after a little while, you can easily distinguish reputable sources from bots, spam, and clear efforts to “pump and dump.”
More importantly, the smoking gun why this was a fraud was easily found with even a little research. The press release initially published on GlobeNewsWire had “Walmart-corp.com,” as the source. This website was reportedly registered just last month. The “decentralized intelligence agency” was sending that out within moments. How could you not see the red flag? If someone told you that Walmart’s website was “Walmart-corp.com,” you’d probably raise an eyebrow.
Unfortunately, most people don’t read beyond the headlines. Those responsible for this hoax probably knew that. In 2014, a study from the Media Insight Project found just 41% of Americans read news with any level of detail. Two years later, The Washington Post, reporting on a computer study from Colombia University and the French National Institute, said 59% of links shared on social media aren’t even clicked on. Twitter now encourages you to read the article before you retweet it, but even that doesn’t guarantee most people will do anything beyond skim the headline.
Though it would be hard to construct a study proving this, I expect the “act first, read later” mindset would be even stronger when it comes to finance. Social media has fundamentally changed the trading environment and investors must respond quickly. It doesn’t if the market is acting “irrationally” or not. When it’s your money on the line, you must act fast.
GlobalNewsWire is embarrassed. If you try to find the initial press resource now, it has been removed. However, during those critical moments when the “news” was being spread, Litecoin rose to about $237. It’s since fallen to below $180 as of this writing – though it’s still slightly up over the last 24 hours.
Some people undoubtedly made some money honestly during this window. However, they’d have to be:
- Lucky enough to see the headlines when it was first being reported.
- Knowledgeable enough about cryptocurrency to understand this supposed move made no sense.
- Thorough enough to read through the press release or a report that showed the phony link,
- Smart enough to understand that Litecoin was going to dive once the fraud was discovered.
- Quick enough to do all of the above and sell their Litecoin before the rest of the market caught on.
The odds of pulling all that off are about as good as getting a Microsoft Xbox Series X in the 10 seconds that they are available after a drop. That’s a lot of breaks that would have to go their way. I’m not going to fault anyone who managed it.
However, the people who set this up are fraudsters of the worst kind, and I suspect they’ll be found out. It was a classic “pump and dump” that had to have originated from a single source, not just chatter on social media or Discord. It was especially heinous because the conmen fabricated quotes. They weren’t just ripping people off, but trashing the reputations of other people. They also trashed an entire financial sector.
This couldn’t have come at a worse time for cryptocurrency.
The SEC already fired a shot across the bow of Coinbase [COIN], suggesting that it was considering legal action. El Salvador’s experiment in using Bitcoin as legal tender has met with skepticism, if not outright hostility, from central bankers and most press. China has practically driven cryptocurrency miners out of the country. A plethora of alt-coins that serve no real purpose are regularly pumped and dumped (in a far more decentralized fashion) across social media and on various websites and people are catching on.
In other words, a lot of people are view cryptocurrency as simply a tool for speculation. The Walmart/Litecoin fiasco provides a powerful argument that they’re right. More stringent regulation of cryptocurrency is probably desirable and certainly inevitable. Today’s fiasco was simply the clincher.
Yet for Rogue investors, that’s not the real lesson. Any teenager dabbling in meme stocks and Bitcoin via Tiktok would have known within moments that this was an obvious trick. Nonetheless, some of the world’s leading news services and financial websites ran with it. If it weren’t for the fact that real people probably lost money because of this scam, the image of financial journalists furrowing their brows and earnestly debating the wisdom of Walmart’s bold strategy would be quality entertainment.
The takeaway is that there is no longer a “mainstream” when it comes to financial news. The massive influx of retail traders, commission-free trading, and the impossibility of regulating online speech about stocks and cryptocurrency mean that you can’t just go back to the same old sources. The game has fundamentally changed. Besides, one of the reasons so many “mainstream” sources reported literal fake news (before correcting it) is because they are subject to the 24/7 news cycle.
It’s not just that most readers don’t go past the headlines anymore – it’s that many journalists don’t either. It’s not even really their fault. They can’t afford to. The whole model of journalism is fundamentally broken.
For all these reasons, consider taking a step back and returning to fundamentals, especially when the market is in a downturn. There’s something to be said for being glued to your computer all day. There’s nothing like the rush of closing a triple digit gain within 24 hours. However, unless you want that to be your life, concentrate on investments that will bring in solid returns for years to come.
Don’t stake your future on something that can be destroyed by one phony press release – and always read past the headlines.
Mr. X is an investment analyst working in the Washington DC area who specializes in the intersection of business and public policy. After fifteen years working in politics, he writes on a classified basis for RogueInvesting.com three times a week to bring you news on what those with power are debating, planning, and doing.
