Canny view: Don't play with fire

When it comes to your money do your research before investing. Photo / NZME

OPINION:
On the 24th of April 1854, the Bella was found capsized off the coast of Brazil. It had set sail from Rio De Janeiro for Jamaica four days earlier. No passengers or crew were found, and it was assumed all on board were lost at sea. However, there was a rumour that another passing ship had rescued the survivors and taken them on its voyage to Australia.

Roger Tichborne was one of those on board and presumed lost. Back in England, his mother, Lady Henriette Tichborne, refused to give up hope. She clung to the story of the passing ship that may have rescued Roger and ferried him to Australia.

Lady Tichborne advertised in Australia for information on Roger's whereabouts. Twelve years after the disappearance, she received a letter from a lawyer in Australia. It was on behalf of Roger. Yes, he had survived the shipwreck.

He'd tried to make something of himself in Australia, starting various businesses. They'd all failed, and he'd been too embarrassed to contact his mother. He'd recently seen her ads and was filled with remorse for the worry he'd caused. Could she send money for himself and his Australian wife and children to return home?

Nick Stewart. Photo / Supplied

Lady Tichborne obliged and welcomed Roger back into the family, along with an annual stipend to live off. As you'd expect, much had changed in over a decade.

Roger was now an inch taller, had several extra inches around his waist and a new birthmark. His tattoos had disappeared, his eye colour had changed, and he'd also forgotten how to speak French after growing up in France!

While such leaps of faith usually have a day of reckoning, Lady Tichborne believed this was Roger and wouldn't hear anything to the contrary. She went to her grave believing this truly was her dear son. Her doubting family then rooted out the impostor after her death.

Despite the fraud, the one person who needed to believe in this story didn't come to any harm and lived in blissful ignorance for the final few years of her life. Unfortunately, most days of reckoning aren't delayed indefinitely for those who chose to ignore better judgment.

The recent failure of several cryptocurrency platforms has illustrated the leaps of faith some take with their money. They're highly unregulated, and there's still no good answers on what they are.

Asset? Backed by what? Currency? What business genuinely wants to accept payment in something volatile enough to destroy their profit margin in a few hours?

This confusion hasn't stopped cryptocurrencies racing upward in price. This only increased people's interest, and in some eyes, crypto's legitimacy.

And it wasn't just speculation occurring. Despite the talk of decentralisation away from "the system", platforms sprung up providing asset custodianship and quasi-banking services. Celsius was one such entity.

Celsius is effectively a bank for cryptocurrencies — though it's not regulated as one. Users deposit their Bitcoin, Ethereum, or Tether and receive weekly interest payments.

There's no need to elaborate or explain why this is ridiculous. Anyone who thought this was credible was taking a leap of faith akin to that of Lady Tichborne, but many did. Celsius had 1.7 million users, and late last year, $25 billion in assets on the platform.

The recent crash in cryptocurrencies caused a lot of panic. It followed massive gains that probably encouraged the most naive retail investors into the mix and exacerbated the rout.

Holes were going to be exposed as people panicked and fled back to "the system" with its more reliable currency. Celsius was exposed and it filed for bankruptcy this month, owing its users $4.7 billion with a $1.2 billion hole in its balance sheet. The magic of that 18 per cent yield is explained by allegations it was probably a Ponzi scheme.

To make matters worse, CEO Alex Mashinsky, the well-known face and co-founder of Celsius, recently cashed out about US$28,242 ($44,400) of his CEL tokens despite user withdrawals being frozen since June.

Cryptocurrency has long been promoted as a way to break free from "the system" controlled by "the elites".

As an example, last year Celsius was encouraging users to share their stories as part of a giveaway. One of them said "I don't trust the banking system, but I trust Celsius."

Letters to the bankruptcy judge spoke of years of saving and hard work to acquire the wealth they lost. One might note a cruel irony: their wealth was accumulated by toiling and saving within "the system" they refused to trust, and that wealth was destroyed by going outside it.

Like the Celsius affair, the Tichborne affair wound up in court. The fake Roger Tichborne was a butcher from Wagga Wagga named Tom Castro, who on further examination was found to be an Arthur Orton, originally born in London! The case captivated the English public and Orton enjoyed some notoriety, but eventually served 10 years for his fraud and died destitute in 1898.

If you're looking to grow or protect your wealth, you are much better off following philosophies that subscribe to scientific, evidence-based practices. And if you question your current approach or want to get into investing but you're stuck on where to start, get in touch with a trusted fiduciary to discuss your options.

• Article created in partnership with Mancell Financial Group. Nick Stewart is a financial adviser and CEO at Stewart Group, a Hawke's Bay and Wellington-based CEFEX- certified financial planning and advisory firm.

• The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz i https://www.cnbc.com/2022/07/17/how-the-fall-of-celsius-dragged-down-crypto-investors.html ii https://www.coindesk.com/markets/2022/08/09/dormant-wallet-linked-to-alex-mashinsky-used-to-cash-in-on-cel-token-surge/