Cryptocurrencies, get-rich-quick scam, or serious investment?

Just because scrupulous operators take advantage of the lack of understanding of digital currencies in the general public is not the fault of digital currencies. I do not, by any means, advocate that you give your savings to an operator who promises you a huge return, careful. Don’t just without scrutiny and understanding what exactly you are getting involved in pay over money to anyone. This is true for your regular money; why would it be different for digital money? If anyone asks you to pay your hard-earned cash into their personal account — RUN!

Many ‘investment’ schemes in digital currencies sound far too much like a pyramid scheme to me. ‘Buy from me, get others too but from you, and we all make a commission.’ I would never use a pyramid scheme as a savings or investment scheme; why would I do it investing in cryptocurrencies? I’m not saying all of these schemes are scams, but I don’t like doing business that way! Neither should you.

So let’s talk a bit about what digital currencies are and hopefully help you understand why they are just as valuable as the currency issued in your country (fiat currency).

A digital currency is any currency managed, stored, or exchanged on digital computer systems and has no physical form (coin or note). There are different types of digital currencies, including cryptocurrency, virtual currency, and central bank digital currency.

First, let’s get rid of central bank digital currency. Although this is a digital currency, it’s pretty much the same as all other (‘real’ or fiat) currencies issued by a central bank.

Central banks have woken up to the fact that digital currencies are the future and scramble to get into the race.

All money will eventually be digital currencies.

The European Central Bank, The US Federal Reserve, and the Bank of London are busy doing it; China already did it. Why would every single central bank not follow suit? (see Central banks are considering their own digital currencies — this is what they could look like, CNBC 9 Oct 2020). The UAE were frontrunners, and since then, a steady stream of commitments from central banks followed. The latest was South Africa which announced that they were embarking on this journey last week.

Countries with (some in the pilot phase) digital currencies are China, South Korea, Thailand, Saudi Arabia, the UAE, Sweden, and Ukraine.

Countries currently developing digital currencies are Canada, Venezuela, Brazil, South Africa, Turkey, Switzerland, Russia, Japan, and Cambodia.

The USA, UK, Eurozone, Norway, Finland, Kazakhstan, Iran, Pakistan, India, Indonesia, Australia, the Philippines, Madagascar, Kenya, Rwanda, Eswati, Ghana, Chile, and Morocco are still busy with research.

So get used to it — in the future, all money will be digital (in fact, it already is to some extent, you don’t carry cash around anymore). If you use PayPay or your VISA card, you are using the same blockchain technologies used by digital currencies.

The issue I suppose people have with digital currencies are those whom a central bank does not issue. Because most critics say it has nothing to ‘back it up.’

Here is the kicker, what gives any money any value is that someone wants it and is prepared to exchange something else of value for it. Generally, the more finite the supply, the more valuable it will become if enough people want it!

The second principle is that something is valuable because it takes effort to create it; like physically mining minerals, mining cryptocurrencies requires lots of effort and huge investments. So to those who say that people make cryptocurrencies out of thin air and ‘say’ it’s valuable are misinformed.

So, let’s look at some common arguments why cryptocurrencies have no value. The arguments go like this:

There is nothing that backs the currency up.

Here are two things that you may consider if this is your argument.

What backs your fiat currency up? Since countries in the previous century stepped off the gold standard (meaning that there is gold in a vault somewhere that guarantees that your money is worth something), all fiat currencies are government ‘ promises’ that the money is worth something. Even that is not entirely true, as a currency's value fluctuates based on demand and supply. Government fiscal policy may influence the value of your money in your bank account or wallet, but it does not determine it. Your money is worth what someone is willing to exchange for it!

Now that we determined that sentiment determines the value of fiat currencies (what someone is willing to pay or exchange for it), why should cryptocurrencies differ?

The next argument is that it’s just funny money, and it could all disappear.

All money except the few coins and notes in your wallet are funny money. It is just as likely that your country’s money will disappear overnight as that say bitcoin will disappear overnight. These days, both fiat and cryptocurrencies are just numbers in computers and transmitted over networks — no difference.

What makes digital currencies so secure is that it is stored in a public ledger stored on thousands of computers all over the world. It is impossible to wipe out all records of who owns what. It is not hidden or secretive; anyone can see how much money any wallet holds. The only private bit about it is if you are willing to tell someone what your ‘wallet number’ is. Every transaction can be tracked and traced. Every transaction needs to be approved by multiple nodes (computers) on the network.

The blockchain methods used in cryptocurrencies are how we will do all transactions in the future. Don’t believe me? Well, VISA uses Ethereum for all their settlements across the globe! There are thousands of examples and applications for blockchain because it is so secure and transparent, and virtually all cryptocurrencies use this technology! In the future, you will invoice using blockchain, do property transfer using blockchain, vote using blockchain!

Maybe I could still buy the above argument when cryptocurrencies were small. But do you know how many dollars’ worth of cryptocurrency changes hands daily?

Sorry, I also don’t know, and I don’t think anyone can give you a definitive answer. BUT, on just five of the top cryptocurrency exchanges, $59 733 928 842.00 was traded in the last 24 hrs (Binance, Huobi, Coinbase, Kraken, KuCoin). That’s more than a quarter of the daily trade in the Nasdaq!

Cryptocurrencies are no longer funny money; they are serious assets traded and used seriously! $59 billion is not peanuts, and that is just on five exchanges!

Then there is the argument that non-fiat digital currencies fund illicit trade and terrorism.

And the good old US$ don’t, LOL.

Just about everyone tells me, ‘I have heard of many people who lost their cryptocurrencies.’

And yes, that is true (I am one of them who lost a bundle). I have also heard of lots of people who have lost physical money! Cryptocurrencies are like cash. If it’s in a wallet, and you lose the wallet, it’s gone! Stop treating cryptos as play money! Treat crypto as real money, and maybe you would not lose it!

I was pretty amused today when I went to the Nasdaq homepage to get the daily trade volumes; the top three investor stories on the Nasdaq site were about cryptocurrencies. Why you don’t want Cordano to hit $10, Top currencies to buy in 2021, and BitTorrent has the potential to explode in 2021.

I suppose what I’m trying to say is that digital currencies are no different from fiat currencies; they have value and have huge benefits. They offer a level of transparency that is not always the case with fiat currencies. They will hold value as long as they are in demand.

What are the chances of demand evaporating overnight or even over a decade?

Well, as much as it would for any fiat currency. They are, however, more volatile at the moment, sure?

But as time goes by, what China is doing or what Elon Musk is tweeting will have less and less effect on the value of cryptocurrencies. There is no turnaround anymore; we have passed the tipping point. Cryptocurrencies have just become too big and influential to stop or fail.

Now bear in mind that there are thousands of cryptocurrencies. Most of them will never amount to anything because they do not have a reason to be valued. Just as there are millions of businesses, 99.999% will never list on a stock exchange. Just because one Bitcoin was worth over $60,000 a few weeks ago does not mean that will happen with every cryptocurrency. But mark my words, before the end of this year, we will pass that mark again and probably see a Bitcoin being close to, if not over $100,000!

The best course of action is to familiarise yourself with the market, read and research. Join a crypto exchange (the same as a stock exchange) in a reputable market, where regulations provide some safeguards for investors buying crypto assets on the exchange.

Buying cryptocurrencies on these exchanges are like buying shares on a stock exchange; instead of shares, you hold a currency. If the market goes up, you gain; if it drops, you lose.

If you are a bit more adventurous and skillful, you can day-trade and speculate. Just remember fortunes are made and lost day-trading, it can have high rewards, but the risk is high also.

My advice here; if you are not a successful stock trader, do not try trading with cryptos. There are many crypto traders out there; let one of them do it for you.

Buying and holding cryptos carries a similar risk as investing in tech shares; my stock portfolio and my crypto portfolio react very much the same.

Cryptos and digital currencies is an asset class that should not be ignored anymore.

Yes, investment in cryptos is riskier than buying well-known (boring) stocks.

Still, if you look at the history of the more prominent names in the crypto market, and if you hold a basket of cryptocurrencies (spreading risk) like in any stock exchange, in time, it will only go up! The chances are that they will go up way more than ordinary stocks!

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Johann Botha

Johann Botha

Johann Botha, a digital change provocateur & getITright® CEO. Transform & build organizational agility, & digital-age capabilities. Consultant, speaker & author