I’ve been talking with friends about the scams that have been going on in the crypto space for a while. We watch what’s happening with ICOs, some of us even get calls from relatives about tokens because we’re “in tech,” and we wonder when the SEC will take some action in the space.

It’s certainly more complicated than “everything is a scam” or “all these people are terrible,” but there are many scams and many terrible people, so it is understandable that Charlie Munger might characterize the thinking amongst people piling in as “Someone else is trading turds and you decide I can’t be left out.”

It’s also understandable that folks who are true long-term investors and believers in the technology might take offense to this. It certainly doesn’t apply to them. Perhaps the best, wrote a post suggesting that it’s not all trading cards and beanie babies.

We could debate what percentage of tokens do or do not fit this description. Suffice it to say, I think most do. But let’s agree some represent real investment opportunities. So what’s the problem?

That gets us to the “industry’s” Big Lie, which is a common refrain in social media and the press, and which Fred interestingly closes with in his rebuke of Buffett.

And that this investing is the first time that anyone in the world, independent of wealth and domicile, can participate in venture capital style investing in the next big wave of technology.

This is crypto‘s Big Lie. And it’s seductive. You too can get rich like venture capitalists (though consider a higher bar since you don’t get management fees on your crypto bets).

Setting aside the fact that investing is not independent of wealth (you need money to invest), these markets are opaque, controlled by insiders, and by the time “anyone in the world” has the opportunity to invest, the price is often an order of magnitude or three higher than the price paid by venture capitalists (first in line), and significantly higher than what accredited investors paid in pre-sales (second in line).

And you hear it in private conversations with crypto teams as well. To paraphrase one statement (but not much), “we are letting value-add VCs buy equity in the company, and pushing the dumb money that got rich on bitcoin into the public sale.” When money is abundant, who it is attached to matters even more, and money has never been as abundant in traditional venture as it is in crypto.

So, while these may be compelling assets if you know how to pick the right ones, we need to start being honest with investors about where they sit in the pecking order.

They need to understand that their cost basis is not the same as the venture capitalists, crypto funds, etc whose logos are on the ICO website and whose social proof they trade on to raise hundreds of millions of dollars.

They need to understand that many of these insiders (to be clear, not USV AFAIK) are flipping into these public sales, taking an easy 10–100x, taking profits by virtue of their access.

They need to understand that they’re playing a very different game. It may be one they can win, but it has its own rules.

And they need to determine for themselves with more complete information if that asymmetry of access is really democracy.

Crypto-Twitter spent the weekend reminding each other that Buffett doesn’t understand the technology that underlies these innovations (and they’re almost certainly right). In my opinion, this misses the point, which is why the Munger quote above on investor psychology is much more important than Buffett’s (quoted by Wilson) on value.

Today many crypto investors (retail and otherwise) are drunk with greed. They believe the Big Lie that this is a democracy where they can now get rich like all the venture capitalists, because they hear it wherever they go to read about investing in crypto.

As I was reflecting on the hype and greed in the crypto market this weekend, I was reminded of an amazing Buffett quote (not about crypto) I think about often during hype cycles, as relayed by Brian Chesky:

Chesky to Bezos: “Jeff, what’s the best advice Warren Buffet ever gave you?”

Bezos: “[I asked Warren,] your investment thesis is so simple…you’re the second richest guy in the world, and it’s so simple. Why doesn’t everyone just copy you?”

Buffett: ”Because nobody wants to get rich slow.”