"Srikanth Sir, why did you never suggest us putting money on Crypto?"
This is a standard question I get from many of my YOUNG clients
My standard response is "Anything which is attracting your attention only because of its PRICE movement and not because of its UTILITY and Usefulness does not deserve your hard-earned money. If you still want to go ahead...invest only that money which you are ready to lose 100% "
THE BIRTH OF CRYPTO :
𝐎𝐫𝐢𝐠𝐢𝐧𝐬: Crypto (rather Bitcoin) was born in chaos, in the aftermath of the 2008 financial crisis – banks collapsing, counterparties abetting on contracts, and declining trust in Central banks. It was designed as a peer-to-peer decentralized monetary system devoid of intermediaries.
And gradually it grew worldwide mainly because Govt could never find who owned Crypto coins and this made people with ulterior motives (Terrorists, Drug Traffickers, Crime Syndicates, and Black Marketers) adapt Crypto and promote them
The anonymity of the Holder is the biggest attraction of CryptoCurrency.
WHAT IS MONEY :
Money has 3 purposes. It serves as:
A medium of exchange
A store of value
A unit of account
While CryptoCurrency is definitely a unit of Account
whether it’s a medium of Exchange or a Store of Value is a question mark
It’s not yet a medium of Exchange because Govts all over the World do not want to let go of their hold to print money and are hostile to the CryptoCurrency.
(For example, RBI would not let its hold to let of printing Rupee)
It’s not a Store of Value because it’s very volatile
Going up 1000% in a month
equally crashing by 99.99% within 10 minutes !!!
And to create Crypto, technology is used, and this uses loads and loads of energy.
In fact, BITCOIN CONSUMES MORE ELECTRICITY THAN ARGENTINA.
SHOULD I INVEST IN CRYPTOCURRENCY:
Any investment for that matter should always be done on 3 parameters
What is attracting loads of people to Crypto is purely the Price Movement and Risk is definitely the least item on their mind.
In fact, RBI Governor and even Indian Prime Minister too have warned about Crypto Currency and advised people at large to be careful about putting money in CryptoCurrency.
You would have read many news items of CryptoCurrencies being lost due to THEFT from the Digital wallet, Computer Failure, even loss of passwords.
Yes...if you forget your password of Bitcoin then that money is GONE FOREVER as getting a password is next to impossible.
I am reminded of the incident of one Mr.Stefan Thomas
Thomas lost over 200 million dollars because he has forgotten the password to his secure hard drive that allows only 10 attempts.
You get a return on any asset when the underlying either produces something of value or grows in value due to its utility.
Sadly, CryptoCurrency is just a digital token.
Shares have underlying companies which make products and services and generate profits.
Bonds have borrowers and lenders
Gold has intrinsic value
Metals have usages.
CryptoCurrency has NO UNDERLYING ASSET and get this basic fact CLEAR in your mind.
The price is going up...well...because of Demand (feeling of limited supply).
Once this false notion goes...the pain could be unimaginable.
Constraints on liquidity
Lack of legal tender status will constrain cryptocurrency liquidity compared to traditional portfolio hedges such as Commodities (Gold), Currency, Bonds, or real estate.
Any asset that can generate cash for you is said to have liquidity.
Some like Bonds, Gold, Stocks give instant liquidity
Some like Land, Art gives you delayed liquidity.
And I always give liquidity priority on how quickly I can get money when there is emergency or a crash.
In this case, even though land appears illiquid, still you do get cash even if it is some discount to its perceived value (if you sell in a hurry)
Sadly, Crypto Currency right now faces the issue of finding a GREATER FOOL to pass on the egg to.
This is due to variety of reasons like regulation, limited reach and shallow understanding of Crypto Currency.
Crypto Ads are here, there, and everywhere
The ads clearly show that Investing in Crypto is UNREGULATED.
What this means is, in case if something goes wrong with your buy or sell trade, no one....I repeat, no one be it SEBI, RBI will take your complaint and help you get back your investment, as Crypto is Unregulated.
Is Crypto Currency regulated?? ....NO!!!
You want to invest in something where there is no one to go to in case of a fraud?? NO...right. Then stay away
Moreover there are 6000 odd varieties of crypto Currency and 1 getting launched virtually every day.
and even as former RBI Governor Raghuram Rajan said..."only an handful will survive" which means more than 5990 Crypto Currency could become ZERO and who knows the Crypto Currency could well be the one which could go down all the way to Zero.
Crypto Currency is as unregulated as your next-door CHIT FUND which take money from people and vanishes. There have been too many scams involving Crypto Trades.
Yes....scams are there even in stock markets. but at least we have SEBI, RBI, Finance Ministry who get involved and help the investors.
But where will the Crypto investors go?
Whose door they will knock if there is a scam?
China has already banned all forms of Crypto Currency in September 2021
More and more Governments will probably go on to make Crypto Currencies illegal or very expensive to deal with in practice.
CANT PASS IT ON:
Like your land, mutual fund, FD or any other investment, Crypto Currency CANNOT be passed on to your dear chosen nominee after your death, except by handint it over yourself, which you cannot do if you are dead. This is because Crypto Currency has a Cash-like-feature.
BITCOIN NOT YET ACCEPTED
Someone said Bitcoin is now accepted at many places!
after 10 years of launch, out of 6,20,907 restaurants in USA, only 6,20,822 DO NOT ACCEPT Bitcoin, and you call this Acceptance !!
Just ask your servant whether he wants payment in Rupees or Gold or Bitcoin.
IN CONCLUSION :
Just because more and more Retail investors are putting money in Bitcoin does not mean it’s should be made legal.
In fact, right now there are more Crypto Traders (10 crores) than Mutual Fund investors (6 crores)
Does that mean Crypto is good?
For them, I have a question
Just because you find more WINE SHOPs than YOGA CENTRES does that mean WINE SHOPs are more beneficial than Yoga Centers.
If you do want to put some money as every Tom, Dick and Harry is putting money in Crypto...then PUT ONLY THAT MONEY WHICH YOU ARE READY TO SEE IT BECOMING ZERO. Do not put your parents Hard Earned Money into this Tamasha.
Having said this....Cryptocurrency could become legal going forward and could come under regulation but till then I follow the principle of A BIRD IN HAND IS WORTH MORE THAN 2 IN THE BUSH!!
For me, BITCOIN is a game of GREATER FOOLS THEORY.
Someone buying only in the hope that there will be another person who will PAY MORE for it and this cycle as long as its running the dance goes on. Its just trying to find the next big fool.
The day fools end, the bubble bursts.
The moment the music stops we may well see LOTS OF BLOOD on the street.
Yes...some people have made money in Crypto Currency
People have made money even in Casinos
People have made money even in Races
That does not make Casinos and Races a place to INVEST.
They are good for Gambling. The same goes for Crypto Currency.
Crypto Currency is good for GAMBLING and not for Investment.
I rest my case.
Author - Dont Retire Rich
All the best,