The stunning collapse of cryptocurrency exchange FTX is a stark reminder that there are only three ways to accumulate wealth: work hard, have an inside track, or be lucky. Sadly, the false dream of getting rich quickly will continue to suck in the naïve and the unfortunate.
I have a friend who has been investing in stocks as a side gig for many years. A combination of his own talent and his experience in the field have made him an exceptional investor, but all of that would count for nothing if he didn’t spend upward of four hours a day gathering and analyzing corporate information.
My friend is also honest, meaning that he doesn’t commit forms of fraud such as insider trading to get an edge. His success is dependent upon him doing the financial market equivalent of toiling in a field all day like a medieval farmer.
Others work equally hard but aren’t as good as him, in the same way that if I were to play soccer for 10 hours a day I would be nowhere near as good as Lionel Messi. However, Messi would be a nobody if it were not for the thousands of hours, he has dedicated to his craft over the last 30 years.
Those of a leftwing persuasion reading this column are probably fuming at my insinuation that being rich depends on hard work, but they should not fret. The alternative path to riches that people can take is to have an inside track, which can come in several forms.
Some – like members of a royal family or children of top CEOs – win the birth lottery by being the offspring of millionaires. They become rich with minimal effort, and in many cases, without their inherited wealth, their talents are so limited that no amount of hard work would allow them to become rich.
Others have parents of average or less wealth, but they prefer to use criminality to secure an advantage over the rest of society. This may even apply to FTX chief executive, Sam Bankman-Fried, but it is too early to determine if he behaved criminally or not. However, there is no shortage of corporate leaders who built their wealth on illegitimate behavior, such as Bernie Madoff or Charles Ponzi.
That leaves the third category: people who are just lucky. That fortune might be in a structured game of chance, such as a lottery or casino game; or it could come at the bookmakers or from a lucky stock pick. Alternatively, they might be victorious in a genetic lottery by being born with exceptional intelligence or beauty, paving a path to riches, though even then, some measure of complementary hard work is usually required.
If you are not in any of these three categories, then forget about being rich. Yet many steadfastly refuse to. Instead, when approached by the latest form of conman – and these garden weeds never, ever die out – then they cannot resist the seductive false promise of a get rich quick scheme.
FTX peddled this nonsense to thousands, unfortunately, and it included some high-profile celebrities. As ever, while some of the price might be paid by the snake oil salesmen, most of the pain is felt by ordinary people who were taken advantage of. While we have all been conned (me included), here are the questions you should ask yourself when someone offers you a path to extreme wealth.
Will I have to work hard? Does it involve criminal behavior? Do I have some sort of legal inside track? Does it look like I am lucky compared to everyone else? If the answer to most of these questions is “no”, then you should consider walking away.
Many people sucked into cryptocurrency scams like FTX might have avoided them had they asked themselves these questions. If your plan for getting rich is buying cryptocurrencies – possibly using money you don’t even have – and then waiting for the price to rise, then you surely aren’t working hard, and you don’t have an inside track since anyone can do the same thing as you. That means you are left banking on luck, or possibly being unwittingly involved in some criminal activity. Neither is a good option.
As it happens, FTX was doing lots of shady things. They were trying to get quasi-legal inside tracks by donating to politicians. They were engaged in some highly suspicious obfuscation of information about their activities and organizational structure and had terrible corporate governance. They aren’t the first, and they won’t be the last.
Life is not fair. Many people get rich without working hard, and many more people work hard without ever becoming rich. When the opportunity to rapidly scale the income ladder with minimal effort presents itself, step back and ask yourself how this is possible. If you don’t have a good answer, then save your money and accept the five percent annual return all of us mortals must swallow. The English Playwright William Shakespeare captured this sentiment when he quipped: “Wisely and slow; they stumble that run fast.”