Is cryptocurrency still a safe bet?
The underlying technology that underpins cryptocurrency is blockchain, and with it comes a decentralized form of regulation. This has been the concern of many governments. Although China and some African countries have embraced cryptocurrencies to a greater extent, they are not certain about the benefits that decentralization offers against a traditional tested-and-proven centralized system of monetary control. At this stage, all eyes are on the cautious treading of governments as well as central banks that are figuring out what can and cannot be regulated. After all, because the administration of the economy still lies primarily on a controlling entity, this authority cannot allow a cowboy-town, law-unto-itself system to take root. Even in the space of fintech payments, companies dealing with such transactions cannot go alone as the primary parts of deposit, lending, money creation and policy still belong to a centralized figurehead. It comes down to having a system of order as opposed to perceived chaos, and perhaps this is why ubiquitous adoption is taking some time to take off. Already the alarms are sounding with regards to bubbles and dystopic visions of waves of suicides from a looming Great Cryptocurrency Crisis. Perhaps the wise words of the Oracle of Omaha has resounding truth: “In terms of cryptocurrencies, generally, I can say almost with certainty that they will come to a bad ending.” Some have even compared the Bitcoin boom to the Dutch tulip craze of 1637. With all these in play, how do we make sense of cryptocurrencies from an investment point of view? Well, for starters, when it comes to investments, it all boils down to fundamentals. You will only invest when the fundamentals remain sound and returns tangibly realized across the long-term. Cryptocurrencies are not tangible assets; they are only as good as the people who recognize them to be so. You can have a entire bunch of cryptocurrencies but if the central governments are not recognizing them, all you can do is to use them as a mode of exchange for goods and services up to a value that is deemed agreeable to both parties. Beyond that, whatever cryptocurrency you are holding onto does not hold any meaning to someone who neither recognizes nor agrees to its value. Given the extremely high volatility of cryptocurrency value in comparison to centrally minted currencies, those who are getting into the game at this stage are likely to be punters looking at cashing out in the short term, or whenever they can once they make a small profit. Early adopters probably have little to lose as they took on the cryptocurrency at a marginal sum per unit. The system is perhaps moving towards a day where central governments come together to create a central ‘one-and-only recognized cryptocurrency for trade and exchange. This might just mean the killing off of every other cryptocurrency that has come before it. At the time of this writing, Bitcoin has already fallen by a whopping 67.5 per cent from its peak in 2017, and there is still room to go down even further. Food for thought indeed.