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.
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time of writing, each coin is now worth US$14,439 (NZ$19,900) – although that’s a price that will already be hopelessly out of date by the time you read this column, and probably even by the time I’ve finished writing this sentence.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 email@example.com, 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.