In one of my recent posts, I shared the idea about what is blockchain, the technology that underpins the use of cryptocurrency. Cryptocurrency is basically a digital currency that serves as a medium of exchange like money to execute a transaction electronically between a buyer and seller. It came as no surprise to me that the topic of “Why you should invest in cryptocurrency?” is now the talk of the town. Cryptocurrencies have been hitting the headlines worldwide lately especially when the value of Bitcoin soared astronomically. The price of Bitcoin reached its peak of almost $20,000 in December 2017.
The Bitcoin FOMO
I remember the first time when I was gazing at the Bitcoin’s historical price chart. My mind was like “WHAT THE HELL? THIS IS CRAZY!”. Don’t you think it looks pretty impressive? Bitcoin was traded at mere $0.06 circa 8 years ago. Its value increased by 2,000% in year 2017 alone when the price reached its peak in December 2017. Out of nowhere, there are so many young tech-savvy millionaires minted every corner of the earth.
It is not difficult to understand why many people are engulfed by FOMO (Fear Of Missing Out), rushing themselves to join the cryptocurrency craze. Just imagine someone that you know who barely earns enough to make ends meet. Out of the blue that person got so rich and no longer worry about money just because of Bitcoin. The happening of such unexpected windfall is as though the universal has spoken. Even a risk-averse, steady and sophisticated investor might not want to miss such a life-changing opportunity.
The sudden influx of Bitcoin investors jumping on the bandwagon drove Bitcoin’s price to skyrocket. Unfortunately, the hike was short-lived and Bitcoin’s price tumbled dramatically starting mid December 2017. Many believed that the price plunge was due to the panic selling of Bitcoin when the early investors started taking profit. The price is hovering around $7,000 as of today.
Fun Facts about Cryptocurrency
Before delving into the reasons on why you should invest in cryptocurrency, here are some of the fun facts that you probably didn’t know:
1) Cryptocurrency made its first appearance when Satoshi Nakamoto created Bitcoin in 2009. The identity of Satoshi Nakamoto remains a mystery until today.
2) Someone paid for a pizza using 10,000 bitcoins in 2010. The value of 10,000 bitcoins is equivalent to $179,000,000 in December 2017.
3) As of today, there are more than 1,800 cryptocurrencies and still counting.
4) The total market capitalization of cryptocurrencies is reaching almost $230 billion as of today.
5) Bitcoin’s market capitalization is approximate $120 billion as of today. The market capitalization is higher than some of the largest companies in the world like Nike, Volkswagen Group, Morgan Stanley, etc.
3 Main Reasons Why You Should Invest in Cryptocurrency
In the aftermath of the Bitcoin’s boom and bust, many people start asking themselves a few questions. “Have I already missed the boat?” “Should I invest in cryptocurrency now?” Getting back on the topic of the day, there is a ton of reasons that could convince you to invest in cryptocurrency. Here are the few key ones that I would like to share.
Tighter Regulations on Cryptocurrency
Many people perceive that investing in cryptocurrencies is like a gamble due to extreme volatility in prices. Besides the fluctuations in prices, the hike in number of fraud cases relating to Initial Coin Offering (ICO) and cryptocurrencies trading has raised concern among the public. It has also drawn fierce criticism and scepticism from the world financial moguls.
“Bitcoin is a fraud that will ultimately blow up”- Jamie Dimon, Chairman and CEO of JPMorgan Chase.
“It is not a stable store of value, and it doesn’t constitute legal tender” – Janet Yellen, the Federal Reserve Chair
The negativity arising from the news of fraud cases surrounding cryptocurrencies has dampened the investor sentiment. The good news is that the negativity has attracted the scrutiny of the governments and watchdogs across the globe. Consequently, these regulatory bodies have started to impose tighter regulations on cryptocurrencies. This is especially the case for those territories with the largest volume and amounts transacted in cryptocurrencies like US, Japan, South Korea and etc. In March 2018, the US Securities and Exchange Commission said cryptocurrency exchanges may fall under their mandate and will shut them down if they fail to abide by existing rules. On 20 April 2018, the Members of the European Parliament have voted in favour to introduce tighter regulations for cryptocurrencies.
However, the early investors certainly do not welcome these moves. The introduction of tighter regulations has sparked fears among the investors. They fear that the new regulations would disrupt the free trading of cryptocurrencies and results in diminishing demand in cryptocurrencies. In February 2018, China issued an outright ban on cryptocurrency trading. It is not difficult to imagine how the chain reaction has propagated rapidly and resulted in selldown of cryptocurrencies.
Why Crypto Regulation isn’t a Bad Thing?
On the contrary, the savvy investors see this as a great opportunity. One of the biggest fears in investing is nothing more, but UNCERTAINTY. Regulations with coherent guidelines and framework are vital to ensure fair trading and to eradicate fraudsters in the cryptocurrency market. This is essential in pursuit of cryptocurrency as the alternative medium of exchange for the transformation of current financial system.
It is easier said than done but it is clearly evident that the regulations begin to take shape. The increasing stability would certainly stimulate the growth and demand of cryptocurrencies. It is a consensus that the use of cryptocurrencies in digital transformation is inevitable in years to come. While the cryptocurrency market is still at infancy stage, it is all the more reason for you to get your feet wet in cryptocurrency now.
Follow the Big Boys
As a novice investor, it may be extremely difficult to make your first move given the volatility and uncertainty in the cryptocurrency market. Also not to mention the sophistication and technical jargons used in the application of blockchain technology and cryptocurrencies. It is undeniable that it is essential for an investor to understand the risk and nature of an investment before deciding whether such investment fits the investment portfolio to meet the investor’s financial goal. Why not start off with looking at how the movers and shakers in the global investment management industry act on it? Understand the rationale of their moves before making your own decision is definitely an easier way to begin with.
Here are some of the notable examples:
• Goldman Sachs Group, Inc. a leading global investment banking has confirmed that it will launch a Bitcoin trading desk and offer its client a type of futures contract that will be linked to Bitcoin.
• Amazon.com Inc offers cloud integrations for a number of blockchains and partnered with Ethereum cryptocurrency startup ConsenSys.
• Daimler AG, the maker of Mercedes-Benz had issued 100 million euro corporate bond using Ethereum, has begun testing its own cryptocurrency.
• Toyota Motor Corp is exploring how blockchain payments could enable self-driving cars.
• Bank of America is working to automate the process of creating letters of credit using the Ethereum blockchain.
• BackRock, the world largest asset manager handling more than $6 trillion, has set up a working group to look into cryptocurrencies and blockchain.
Sit on the Fence, Watch and Learn Before Making a Decision
It may not be true that the Big Boys will always make the right move orelse the dot-com bubble wouldn’t have happened. Nevertheless, don’t you agree that such rapid growth in the use of blockchain technology and cryptocurrencies by the big players is certainly worth a study? Blockchain technology and cryptocurrency may sound rocket science to you but you’re not alone. You can refer here to learn about the basic principles of blockchain technology explained in one my recent posts.
Before you rule out cryptocurrency as your investment choice abruptly, probably is good to take a step back and sit on the fence first. Look at the trend around and have a proper deliberation before making your decision. It is not difficult to rationalize why cryptocurrency could be one of your greatest alternative investments after all.
Benefits of Using Cryptocurrency
One of the most debated topics about cryptocurrency is the function of it as a unit of account to store value and serves as a medium of exchange. There is a key distinction between fiat currency and cryptocurrency. Fiat currency is currency that declared by a government to be legal tender. Cryptocurrency is not legal tender and not backed by a government. Supply and demand relationship determines the value of both fiat currency and cryptocurrency.
It may be understandable that cryptocurrency would never be able to replace the fiat currency like the US Dollar, Euro, Renminbi, etc. But there are questions that I have on my mind. “Does it really matter?” “Does cryptocurrency have to replace the world currencies to be viable in long term?”. My take on this is that these are all irrelevant so long cryptocurrency is widely accepted as a medium of exchange. Its value will never be ZERO.
On 20 August 2018, the president of Venezuela has announced that Bolivar, the national currency is pegged to the government’s own petro cryptocurrency to save the country from economic collapse. Given that the value is solely based on the supply and demand of the currency, the benefits of blockchain technology underlie the long term viability of cryptocurrency and the potential to realize its value.
Understand the Intrinsic Value of Cryptocurrency
It is undeniable that the use of blockchain technology has eliminated certain drawbacks of the traditional financial system. Blockchain technology executes a transaction via cryptocurrency without relying on any third party. That’s why the transaction cost is much lower as compared to traditional methods. The risk of fraud and error is low as blockchain serves a permanent ledger. No one can alter the transactions once recorded. The settlement of a transaction using blockchain is almost immediate as compared to traditional methods. It also protects the privacy and anonymity of the identity of the users and transactions.
The intrinsic value of cryptocurrency is not because of the fancy name of the virtual currency itself nor the speculative buying by the investors. The world will uncover its real value when more people start reaping the benefits of using cryptocurrency.
The use of cryptocurrency forms an integral part of the transformation in the traditional financial system and investment offerings. Haters gonna hate. The strong believers will always find their own reasons to bet big on cryptocurrency. In this era where technology grows at such exponential pace, the world has become so resourceful. Any information that you need is at your fingertips with just a click of a few buttons. You do not have to be a follower blindly, but you should never limit your options so abruptly. It is worthwhile for you to make good use of the available information and have a thorough thought to make an informed decision.
Sharing My Two Cents
The underlying risk of an investment is never meant to be eliminated. It is for the investors to manage and diversify to ensure that they allocate the resources efficiently to maximize returns. Many people advised that only invest what you can afford to lose in cryptocurrency. That isn’t enough for me. My advice is that invest what you can afford to lose and ONLY IF when you lose everything you have invested, you could still have a sound sleep at night. Any of you who gets weak at the knees easily is not advisable to get your toe wet in cryptocurrency world before thinking twice. Good luck!