on the crypto
Investing in cryptocurrencies like Bitcoin is like playing the lottery and investors need to be careful when they include speculative asset classes in their portfolio.
Sooner or later they will be regulated
The cryptocurrency has largely escaped regulation to this day, as its popularity continues to attract huge speculative investments in hopes of getting rich quick. However, these days seemed to have numbered days, as governments around the world are trying to regulate this largely unconventional asset class.
This is according to Saliegh Salaam, Portfolio Manager at the Old Mutual Investment Group, who says there are many parallels between cryptocurrency and the lottery. Discussing a recent article by Bloomberg columnist David Finkle, “What XNUMXth Century Venice Teaches Us About Cryptocurrencies,” Salaam says the widespread use of speculative assets amplifies the potential for negative public consequences.
Just like with lottery or gambling where the house always wins, cryptocurrency buyers have a chance to win big and some investors have profited from their acquisition. However, as with any gambling, there remains a greater chance that investors will lose their money.
The admonitions of the regulators
Bitcoin is an entirely online digital currency, has a fixed supply, and runs on a technology called the Blockchain. It is one of the types of cryptocurrency that exist today and which can be traded via platforms such as Bitcoin Pro.
Regulators are also taking notice; US Treasury Secretary Janet Yellen warns of the dangers that Bitcoin poses to both investors and the public, calling it a "highly speculative, extremely volatile asset".
Salaam says it is this volatility of cryptocurrencies that can lead to financial losses. "Since 2013 we have seen that the price can go up by hundreds of percentage points, and likewise it can also fall back in a very short amount of time, which makes it a very difficult mechanism to predict or use as a transaction tool."
"While there are many long-term Bitcoin holders who believe it will take time to build a store of value, many who are now exploring it do so with the illusion of receiving quick and easy profits," says Salaam.
Short-term investors see the price rise and, expecting the gains to continue for some time, they buy with the aim of cashing in on the higher price when they sell it. This vulnerability to speculation and even market manipulation is what strikes the unwary investor.
Preccopazioni also for safety
In addition to volatility, a lot of uncertainty remains about cryptocurrencies. After more than a decade, concerns over the security of technology continue; and the energy-intensive impact of cryptocurrency mining.
Salaam says expert opinion that cryptocurrency qualifies as a new asset class varies widely, because its underlying value cannot be quantified. “Let's take investment in art as an example. The work of art has intrinsic value to the individual who buys it, but it has no income or cash flow for the investor. In a way, cryptocurrency falls into this field, it doesn't offer a stream of income or dividends. While some argue that it doesn't give you cashback, others argue that, like art, it has perceived value ”.
Acceptance of states
The big advantage for cryptocurrency is that the blockchain technology that underlies its perceived value is here to stay. In June, El Salvador, which started using the US dollar as its currency more than 20 years ago, became the first country in the world to pass legislation allowing Bitcoin to be used in any transaction. Although this move is unlikely to spread in the foreseeable future; indicates that blockchain technology has immense potential for transactional applications.
American billionaire investor Ray Dalio earlier this year lauded the Bitcoin-led revolution as a feat of technological genius, but acknowledged that cryptocurrency "looks like a long-lasting option on a highly unknown future in which I could invest an amount of money that I would not do ”.
Salaam says more importantly, investors need to conduct proper research to ensure they fully understand the investment they are making.
