Bitcoin, and the once-far-out concept of cryptocurrency, has exploded across the investing scene. Everyone seems to want to get in on a piece of the ever-growing currency that is perpetually going up.
But there’s a problem.
Many people my age who are heavily investing in Bitcoin aren’t able to handle the extreme volatility of the cryptocurrency, which leads to a tendency to buy high and sell low, breaking the number one rule of investing. With the popularity of cryptocurrencies exploding, it is necessary to ask if this is the next bubble waiting to pop.
Cryptocurrencies are unregulated, and they not subjected to any form of government control. Not only are cryptocurrencies unmonitored, but they also do not possess a definitive value. One of my issues with digital space investments is that there is a constant risk of hackers gaining unwarranted access to cryptocurrency. Last year alone, more than $50 million was stolen from cryptocurrency investment funds. Who’s to say that this couldn’t be your money getting hacked?
Another issue presented by cryptocurrencies’ lack of regulation is large-scale cryptocurrency investors utilizing a “pump and dump” scheme, where there is artificial inflation of the currency, followed by small investors buying into the rise, further driving the price higher. This rise allows for large investors to sell the coin, in turn making a large profit, leaving the smaller investors with losses. Sound familiar? That’s because it’s the same scheme used in the “The Wolf of Wall Street.” Goverment regulation, which cryptocurrencies do not have, put an end to that situation. I see government regulation looming in the near future, more than likely causing a drop in value of cryptocurrencies when big investors who are cheating the system dump their digital coin abruptly.
A considerable number of cryptocurrency investors aren’t even fully aware of what they are investing in. Instead of doing research on the topic, they look to hit it big and invest a large portion of their money in initial coin offerings, an exciting thing to do, but the initial coin may have no inherent value. These initial coin offerings were recently banned in China, along with trading cryptocurrencies. Many cryptocurrencies’ values are based on speculation, rather than assets. The unparalleled amount of speculation, in particular with initial coin offerings, means the price fluctuation will only attract the extreme risk-seeking investors. As they always say, with high-risk comes high reward, but the possibility of losing a considerable amount of money is probable in an area clouded by speculation.
I get it. Some want to steer clear of the stock market, especially after seeing the crash in ‘08; but I have never understood why, instead, these individuals choose to invest in an even-more-risky medium, and someday, seemingly inevitably, complain about losses.
Two weekends ago, Bitcoin value dropped 15 percent. To say the least, cryptocurrency investing isn’t for those who are easily rattled. Unfortunately, most are. Cryptocurrency investing can be based on impulse, something that isn’t a valued trait in any form of investing, but especially in one that sees volatility to this extent. Extreme shifts have a tendency to trigger a market wide sell-off by speculative investors who quickly want to get their money back.
Cryptocurrency value has exploded more than 700 percent this year; this alone will attract more investors, and keep them sticking around, hoping for the big payday everyone dreams of. The one thing I have to say is buyers beware; stick around too long, and you may miss more than the big payday, and instead it may be an entire investment loss.
Everyone is divided on cryptocurrency. What it comes down to is if you are willing to risk your money for a potentially large gain, or possibly lose it all. The split is real; Goldman Sachs has recently considered a cryptocurrency trading operation, but on the other hand, JP Morgan Chase CEO Jamie Dimon called Bitcoin a “fraud” and said it would stay on the black market. At this point, cryptocurrencies have been flying high for years, and the potential to continue on this path has been diminished. The risk is too extreme for most investors, and the cards are continually stacked against you as an ordinary citizen trading cryptocurrencies. There are numerous other investment vehicles that don’t have the same volatility as cryptocurrencies but can also produce a return on your money that provides a better alternative. I have always wondered why people our age choose to go for the risky cryptocurrencies rather than investing for the long term. Instead of long-term stability, people are choosing short-term volatility, something that will cost you in the end. As it is always said, if it’s “too good to be true,” it usually is.