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Saturday 17 August 2019
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Is Cryptocurrency an Investment?

I    know that I am probably a bit behind the curve, as the big hype about cryptocurrency has died down. However before we start to determine whether Cryptocurrency is an investment, lets delve a bit deeper into what it is and the mechanics behind it.
Cryptocurrency has been around for nearly a decade already, however the real hype only started about 18 month ago, when the first cryptocurrency ever created by the name of Bitcoin really started gaining in value. One of your questions probably is? What is this crypto currency you speak about? Well as per definition on Wikipedia: ”A cryptocurrency is a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions, to control the creation of additional units, and to verify the transfer assets”. Well this is the definition in a nutshell and much broader and more complex ones exist. Bitcoin was developed by an individual/s known as Satoshi Nakamoto.
The architecture behind the cryptocurrency is called a blockcain, which also ensures the validity of each coin. According to Wikipedia: “A blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block typically contains a cryptographic hash of the previous block, a timestamp and transaction data.” Again this is a short description and there is much more detail surrounding a blockchain. I would suggest reading up a bit more on it.
Back to bitcoin and all the other hundreds of cryptocurrencies that are currently available. These are all decentralized currencies that are not regulated by any central bank and I think have created quite a few headaches for the regulators. There have been numerous retailers and other outlets that have started accepting some cryptocurrencies as a means of payment, however there are others that have also done away with it already. There have also been numerous instances of cryptocurrency theft and without a reputable institution backing it, there is no one to turn to.
Getting back to whether crypto is an investment? I would say no. As most of them do not have any traits of being a cash generating assets. There might be some by now that have certain cash generating traits but most are only a currency. The only increase in value in these cryptocurrencies is the demand drive for them. Like any economics 101 lesson will tell you that everything that has more demand than supply will lead to an increase in price.
This demand has driven the Father of the cryptocurrency world namely bitcoin to reach a value of nearly U$ 19 000 per coin during December 2017. The price has however receded after governments started banning the use of it and mentioned that these currencies should become regulated.  In my opinion the drive to these ridiculous highs was the “fomo” or the fear of missing out. People that purchased crypto while it was still cheap were making millions and others wanted a piece of it. Sure there are people that made a lot of money. But purely on the back of speculation, as there is no real value attached to a cryptocurrency. There will be people out there that will differ with me, however in the current form crypto currencies are pure speculation in my eyes.
So in a nutshell, is cryptocurrency a form of investment? In my opinion it is not, and if something is too good to be true, i.e. the returns in cryptocurrency that some people were making, it usually is. So beware and if you do decide to put some money into cryptocurrency for the simple reason as you would like to earn a return on your money. Do not put all your life savings into cryptocurrency and make sure that you are willing to lose some or all of that money. As I mentioned in my opinion it is currently just an instrument of speculation.




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