Considering Investing In Cryptocurrency? Here’s Why You Shouldn’t…
Facebook’s recent announcement to launch “Libra coin” has the market in uproar. And it has revived the long-dormant debate on whether investing in cryptocurrency is a good idea.
It is true that cryptocurrency uncovers a completely new asset class. It is seemingly exciting. New. Global. Some go as far as to consider it the future of money and monetary exchange. For these reasons and more, the fad seems to have grabbed the everyday investor’s attention and interest.
But, is cryptocurrency secure? Will it provide the same stability and growth that traditional currencies and monies do? The answers are not straightforward.
The volatility in the value of cryptocurrencies (or “crypto”s) like Bitcoin is the number one cause for concern that makes them highly unreliable. Today, after Facebook’s announcement of Libra coin, Bitcoin and its adversarial crypto, Ethereum, have seen a surge in value. However, the fluctuation is constant, and there’s no telling if you’ll ever see a decent return on investment.
Cryptos are technology reliant. Coins are mined digitally, stored in wallets and exchanges, and use digital infrastructure for processing and upkeep. Unlike real estate, shares and mutual funds, there is no tangible, physical collateral to back it up.
These are not the only valid concerns. There is little or no regulation governing the market. And governments are undecided about their stance on the issue. Like any system, the success of cryptocurrencies at this point relies on a substantial number of people acknowledging and accepting its inherent potential and supporting it. But the public is hesitant in issuing their vote of confidence just yet.
The pro-crypto camp is adamant that it is only a matter of time and the currency will eventually see resounding success. We believe this young technology has a long way to go and mature before it becomes completely useful. For now, we err on the side of caution and due diligence.
The Crypto Scheme
Cryptocurrency has been likened to a Ponzi or pyramid scheme, with people on the top of the chain benefitting hugely on the cluelessness and ignorance of others. As more people get lured into the scheme, there is a risk of developing a “bubble economy”. When the bubble bursts, it can skew the economy and cause major disruption. Maybe, even global depression. Remember the Dotcom bubble?!
The crypto scheme encourages a number of unfair practices that further rig the game. For example, the tendency for people to hoard coins and only trade to unload coins when their value is right. “Block withholding” is also common, where miners do not report new blocks to the network and can make substantial profits this way.
The Cyber Fraud Challenge
Hacking is a serious threat and wallets and exchanges remain vulnerable to cyber attacks. Even smart wallets are susceptible. You can lose your entire fund if you misplace or forget your access key. And, there is next to zero chance of retrieving your coins should they be lost or stolen.
The popularity and demand of cryptocurrency have spurred a fair amount of fraudulent behaviours. There are new “coins” sprouting up all the time and there is no sure way of telling fake from real or which ones will perform and which ones will simply collapse. Some of the exchanges are fake too, and here, unsuspecting investors are likely to get duped of their coins and their investment in fraudulent transactions.
There is a reason we have evolved from primitive systems of pure barter and exchange. Our financial instruments and systems afford us the flexibility to share benefits with the wider community. When our organisations perform, they boost the economy. When our industries boom, they bring jobs and financial security to millions. Everyone contributes and participates. And we look to uplift the most underprivileged and underserved of us.
The profit models on which today’s cryptocurrencies are based happen to be more short-sighted. They fail to grasp our higher aspirations as a society for achieving – “the greatest good for the greatest number”.
General Advice Disclaimer
The information contained on this website and in this blog-post is general in nature and does not take into account your personal situation or circumstance. It is recommended that you consider and use the information provided responsibly, and where appropriate, seek professional advice from a financial adviser.
Although, every effort has been made to verify the accuracy and correctness of information, Oakmont Financial Group, together with our consultants, officers, agents, and employees, disclaim all liability for any loss or damage suffered by any persons directly or indirectly relying on this information.