Should you invest in cryp­tocur­ren­cies?

New forms of money like bit­coin have made some peo­ple in­cred­i­bly wealthy – but it’s still very much a lot­tery.

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still hap­pens dur­ing the peak sum­mer sea­son.

Af­ter a big day ex­plor­ing the is­land, I had an af­ter­noon lie-down in the grass. Peppa the pig oinked her way over, snug­gled into my shoul­der and fell asleep.

Is­land time can be ex­haust­ing.

If you can’t quite af­ford that dream trip to the Mal­dives, Slip­per Is­land is a pretty good step­ping stone – and best of all, it’s right in our own beau­ti­ful back­yard. ● The writer stayed cour­tesy of Slip­per Is­land Re­sort.

IF you bought bit­coin this time last year, you’d be sit­ting on a re­turn of al­most 2000 per cent. At the time of writ­ing, each coin is now worth US$14,439 (NZ$19,900) – although that’s a price that will al­ready be hope­lessly out of date by the time you read this col­umn, and prob­a­bly even by the time I’ve fin­ished writ­ing this sen­tence.

I didn’t want to write about the cryp­tocur­rency craze be­cause it’s hard to squeeze all the nec­es­sary nu­ances into a col­umn. Now I have no choice. Bit­coin has come out of hid­ing on shady mes­sage boards and burst into the spot­light, to the point where I’m get­ting let­ters from pen­sion­ers ask­ing if they should trans­fer their life sav­ings to the blockchain.

So, should you invest in cryp­tocur­rency?

Any­one who re­sponds with ‘‘ab­so­lutely’’ is not to be trusted. On the other hand, any­one who sneers at the ques­tion doesn’t know what they’re talk­ing about.

A quick over­view: Bit­coin is a dig­i­tal cur­rency that lets you send money any­where in the world. It’s de­cen­tralised, which means it can’t be fid­dled with by gov­ern­ments or fi­nanciers, and is se­cured by a net­work of ‘‘min­ers’’ solv­ing com­plex com­puter prob­lems.

Bit­coin was the first cryp­tocur­rency, but there’s noth­ing par­tic­u­larly spe­cial about it. Any­one can copy its code – and many have, with more than 1300 al­ter­na­tive coins spew­ing forth like a de­ranged slot ma­chine.

Crit­ics point out these dig­i­tal to­kens don’t have any in­her­ent value, as if that’s some sort of slam-dunk ar­gu­ment. Ahem. That de­scribes all money: conch shells, shiny lumps of metal, and pieces of pa­per with old dead peo­ple on them are noth­ing more than shared myths that al­low our species to co­op­er­ate. Sure, they have ‘‘value’’, but only be­cause we col­lec­tively be­lieve they do.

There are good rea­sons to be­lieve in cryp­tocur­rency. For­get the drug-deal­ing shady stuff: the real prom­ise lies in banking the un­banked, sav­ing poor work­ers bil­lions in re­mit­tance fees, scrap­ing off the fi­nan­cial leeches, and ‘‘smart’’ con­tracts en­forced by machines

A lucky few will make for­tunes, and a much larger num­ber will lose a lot of money. Per­son­ally, I don’t plan on be­ing in ei­ther camp.’

rather than fal­li­ble meat­sacks.

Sadly, we’re not quite there yet. So far, the crown­ing achieve­ment has been a vir­tual cat game, and even that al­most crip­pled the net­work. With a lot of big prob­lems to overcome be­fore crypto can deliver on its prom­ises, val­u­a­tions have run way ahead of re­al­ity.

It’s like the 90s, when ev­ery­one lost their minds over any­thing with ‘‘dot com’’ in the name. The hype was sort of jus­ti­fied, be­cause the web re­ally was rev­o­lu­tion­ary. But in all the froth and fer­vour, who knows if you’re buy­ing the equiv­a­lent of Pets.com (which tanked to zero) or Ama­zon.com (which has sur­passed its dot­com bub­ble peak 10 times over, and is 100 times its post-crash val­u­a­tion).

His­tory sug­gests this tem­po­rary in­san­ity is a painful but nec­es­sary step in birthing new in­dus­tries. Bubbles are bril­liant at get­ting ev­ery­one’s at­ten­tion. They at­tract in­vest­ment, and at least some early prof­its are rein­vested. Even­tu­ally the ma­nia sub­sides, and ev­ery­one can get down to busi­ness.

Bit­coin might be­come the new gold stan­dard, or it could crum­ble to dust. Al­ter­na­tive coins might prove to be hi­lar­i­ously over­priced, or, like Ama­zon, a tiny frac­tion of the true wealth to come. Per­haps the true so­lu­tion doesn’t even ex­ist yet.

No-one can pos­si­bly know, which means buy­ing cryp­tocur­rency isn’t in­vest­ing – it’s wild spec­u­la­tion. A lucky few will make for­tunes, and a much larger num­ber will lose a lot of money. Per­son­ally, I don’t plan on be­ing in ei­ther camp.

I own a bit of cryp­tocur­rency, but it’s play money. If you want to fol­low suit, here are the rules: you must be debt-free, with all your fi­nances in or­der. Only invest what you’re pre­pared to lose, and keep it to a small frac­tion of your over­all port­fo­lio.

Crypto is the tech en­thu­si­ast’s equiv­a­lent of buy­ing Lotto tickets – an al­most guar­an­teed loss, with a small chance of a nice pay­day. Hav­ing skin in the game makes it more fun to fol­low along, and per­haps be­come a tiny part of his­tory in the mak­ing. Ex­cit­ing as it might be, re­mem­ber: it’s no sub­sti­tute for an ac­tual in­vest­ing strat­egy. Got a burn­ing money ques­tion? Email Bud­get Buster at richard.mead­ows@thedeep­dish.org, or hit him up on Face­book. You can also find links to pre­vi­ous Bud­get Busters here.

Slip­per Is­land could be New Zealand’s best kept se­cret with dra­matic coves, only ac­ces­si­ble by boat, and a camp­ground that’s is off the radar and rarely busy.

Bit­coins may be ac­cepted by more and more busi­nesses but, as an in­vest­ment, all cryp­tocur­ren­cies are still on shakey ground.

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