Cryptocurrency Investing – Thoughts for the Socially Conscious Investor


By Gary R. Matthews and Dan Matthews

Cash is just as good as money
— Yogi Berra

If you didn’t participate in the relatively recent crypto-mania that produced over 2,000 new cryptocurrencies and saw a huge runup in the price of Bitcoin and others, well good for you. You’re an investor who missed out on a market drop that exceeded the stock market decline in 2008-09.

Cryptocurrencies are like dollars, yen or euros, except that unlike those more mainstream currencies, the vast majority of cryptocurrencies are not backed by a national government (although there are numerous national governments seriously considering this step). Other characteristics limit their functional usefulness, particularly in the U.S. Most importantly for consumers, the value of these currencies can change dramatically within a very short time frame, making their purchasing power uncertain at best. And most retail vendors in the U.S. don’t accept Bitcoin and other cryptocurrencies directly – rather, a cryptocurrency debit card backed by a major centralized network, such as Visa or MasterCard, must be used to make purchases. In addition, Bitcoin and other cryptocurrencies are by design limited in supply. Whereas the supply of a major currency like the dollar automatically increases as the economy expands, facilitating growth, cryptocurrencies do not and are thus ill-suited for general use in any developed economy.

Then there is the tax problem. In its most recent guidance, the IRS has stated that cryptocurrencies are to be treated as commodities for tax purposes. In brief, this means that disposing of cryptos like Bitcoin for financial consideration (as in making a purchase) is a taxable event giving rise to recordkeeping requirements and additional potential income tax liability. In sum, unless you live in a country or area of the world where the official currency is totally dysfunctional (and there are such places), it simply makes sense to use a mainstream currency like the dollar, the value of which is relatively stable.

But what if you are an investor? More to the point, what if you are an investor committed to SRI (socially responsible impact investing)? After all, if the supply of a cryptocurrency is limited, then expanded use of it (increased demand) should increase its value. Cryptocurrency exchanges offer the opportunity to purchase and sell a wide variety of cryptos* – Bitcoin, Ethereum, XRP, EOS, Litecoin, Binance Coin, Tether, Stellar, Cardano, TRON, Monero, and many more.

Initial reflection suggests being very, very cautious. We already mentioned the price volatility, as witnessed in the price movement of Bitcoin over the last two years. Short-term volatility is the primary measure of investment risk, making cryptocurrencies about as risky as any “investment” out there on that basis alone.

Competent investing also involves a thorough and intelligent assessment of the entity that is the original issuer of the security. Is that issuer a profitable business? Or does it make a product or offer a service that promises to make it so in the foreseeable future? Etc., etc. In evaluating any cryptocurrency as a potential investment, what is it that is the foundation of its value?

That question necessarily involves delving into the technology known as blockchain. Without getting too technical, think of a blockchain simply as an accounting ledger that records transactions. More specifically, a blockchain is referred to as a distributed ledger. This means that multiple, independent parties are involved in reaching a consensus as to the exact time and nature of each transaction. Transactions are maintained by many computers around the world, connected via the internet. The technology is complex and designed so that transactions, once recorded, cannot be changed. That makes a blockchain a highly trustworthy method of accounting. Every transaction in any cryptocurrency is recorded by its associated blockchain.

Much is being written today about the potentially revolutionary nature of the blockchain technology. Looking solely at the financial services industry for example, if financial transactions accounted for by a blockchain are the most trustworthy method of accounting, then blockchain theoretically has the potential to replace banks, credit card companies, and other financial middlemen that currently serve this function in our society. This logic can be extended to many other types of business entities where trust is paramount.

As they exist today, virtually all blockchains are tethered to a unique “token”. Some of these tokens are designed to be currencies – like Bitcoin. Other tokens have other uses. There is a flood of activity now seeking to apply blockchain technology to various potential profit-making enterprises. Many blockchains (Ethereum perhaps being the most well-known example) are open-sourced software systems that can potentially serve as the foundation for various potential new business uses. Ethereum’s token is more descriptively referred to as a utility token, rather than a cryptocurrency.

Investors (speculators?) with a very high tolerance for risk are interested in purchasing and holding such utility tokens when they believe the underlying blockchain will prove more useful in facilitating new profit-making ventures. Greater use of the underlying blockchain might well translate into appreciation of the associated token, and hence profit for the holder. In such cases, the tokens can begin to resemble a stock or a bond, although technically they do not evidence the ownership or debt of any underlying enterprise.

Indeed, in the U.S. the SEC has recently issued some guidance as to whether such tokens might be considered securities subject to the same legal and regulatory structure that stocks and other securities must comply with. The gist of the SEC’s view references the so-called Howey test, stemming from a Supreme Court decision by that name. A security exists when three basic elements are present: an investment of money – in a common enterprise (ex. a corporation) – with an expectation of profits predominantly from the efforts of others. The problem with this guidance is that it is completely uncertain whether most blockchains can or should be considered common enterprises analogous to a corporation or government entity. The result is that many blockchain developers do not know which laws to comply with or how to interpret them.

If a crypto-token is truly functioning as a currency, Bitcoin for example, investing in it is tantamount to currency speculation, certainly not appropriate or prudent for the typical long-term investor who seeks to invest for future financial security. If the token is more akin to a utility token, most likely its price is highly volatile, its particular blockchain’s usefulness as yet uncertain and/or unproven, and its legal status in question. This amounts to a veritable landmine for the typical long-term investor, SRI or not.

There are, nevertheless, a number of ongoing projects involving blockchain technology that align nicely with the social and moral considerations of the typical SRI investor.

Moeda* ( is an example. The project was launched in 2017 at a United Nations sponsored “hackathon” aiming to address UN sustainable development goals. Moeda allows entrepreneurs in geographical areas where obtaining financing is difficult to access financing from people worldwide on a crowdfunding platform. Moeda’s use of blockchain technology allows for greater transparency and fewer chances for government corruption than traditional micro-investing platforms. “Seed projects” focus on eco-social products, clean water, sustainable food and coffee production.

LO3 Energy* ( has created another innovative and sustainable use of blockchain technology through their Exergy project. The project aims to decentralize power production, consumption, and sale, an effort many believe is a key component to bringing the world into a 100% renewable energy future. With several pilot microgrids operating around the world already, including in Brooklyn, LO3 Energy is a fascinating project.

Other projects, like FOAM* (, seek to provide more trustworthy and failsafe alternatives to government controlled networks (GPS). Another provides a transparent record-keeping functionality designed to help prevent fraudulent insurance claims, potentially speeding up disbursements for valid claims.

SRI investors might well be attracted to and want to support projects like these. Indeed, there is a great deal of creativity and fascinating activity happening in the blockchain arena. To support one of these projects philanthropically by making a modest purchase of the associated token (think of a Kickstarter like donation to a favored arts project) might eventually contribute to a better world.

Philanthropic impulses aside, however, investing currently in blockchain-based enterprises is a very dangerous endeavor for most investors – it’s a “wild west” arena that is simply too risky. So, read as much as you can if you find blockchain technology interesting, but tread very, very carefully with your investment assets.


*Mention of specific organizations and/or entities is not a recommendation to invest. Consult with your financial advisor about your personal situation.