Eye-popping returns are what makes cryptocurrency a lucrative option for making some quick money, and now that the largest cryptocurrency Bitcoin is worth 600% more than it was a year ago, rising to $54,000 from $7,000 even sceptics and long-term doubters seem to be fascinated. In addition, with a growing number of cryptocurrencies (4,000 as of January 2021) and their endorsements by billionaires, even Indians despite the RBI ban and reservations is now looking to ‘invest’ their money in this unregulated virtual currency.
13-year-old Eric Fineman made a fortune when Bitcoin hit $1200 in 2013 as he had purchased bitcoins at $12 with $1000 – the amount he could manage from his brother and grandmother. At the age of 18, he became a millionaire. Then again, we have our desi Bitcoin crorepati Mumbai-based Akshay Haldipur who made his first 1 crore in 2016. There are several such pleasant Bitcoin and cryptocurrency stories where people made and are making enormous money.
Now the question is,
Is Cryptocurrency a Legitimate Investment For You? Or is a Bubble Ready to Burst?
Well, to begin with, investing by definition is a mechanism to generate future income/wealth.
When you invest in an item or an asset, you put your confidence that there will be an appreciation in its value and/or it will generate income at some point in the future. In an investment, you either provide individuals, entity or business corporations with your ‘surplus’ funds that they put into growing their working business, starting progressive projects and/or maintaining their day-to-day revenue generations. Although a bit risky, they have a positive expected run. This includes purchasing stocks, bonds and/or real estate property.
However, these investment comes only after you have protected and planned your finances well considering,
- Health insurance to access better health coverage for you and your family (The Pandemic has taught us the hard way)
- Life insurance to protect you and your loved ones even in your absence (Remember LIC’s, Zindagi Ke Saath Bhi, Zindagi Ke Baad Bhi?)
- Child Education Planning to ensure no matter what the inflation or circumstances are your children receives the best education
- Retirement Planning to safeguard your health, lifestyle and happy living even if you no longer work or decide to retire early in life
Cryptocurrency on the other hand, unlike investment, is based on speculation where you put your money merely on the basis of making money by chance just like you put your money when you gamble. A pure directional bet, cryptocurrency like casino are not only highly risky but also have a negative expected return in most cases. Highly volatile and totally unregulated, it is quite alarming to note that global investors have lost more than $16bn in cryptocurrency-related scams and fraud as reported by disclosure platform Xangle. Financial watchdogs across the world including ‘The Financial Conduct Authority’ has even warned that this year investors can lose 100% of their money when ‘punting’ on cryptocurrencies.
The prices of cryptocurrencies including bitcoin have skyrocketed this year, climbing at all-time high rates. Several investors who had bought early have even made huge amounts. However, according to financial experts, the bubble just got bigger and so it ought to end. Though they aren’t sure how and when, but they are quite sure that the day it will end, is going to be ugly as investors will have nothing. Nevertheless, crypto specialists across the globe have time and again mention that the ground rule of investing in a highly volatile cryptocurrency is to be prepared to lose all of the money.
Can cryptocurrency help in generating wealth for the long term? Can You Really Consider it as a Tool to Meet Your Future Financial Goals?
Although cryptocurrency can be a tool to amass wealth (crypto enthusiasts might have brought to our attention), there are at least two things you should think of, before adding cryptocurrencies to your investment portfolio:
- Do you have the financial strength and capacity to ride the high volatility cycles of cryptocurrency now that the volatility in the crypto price far eclipses those of other traditional asset classes?
- Indian regulators have been showing quite an ambivalence when it comes to authorizing Indians to actively hold/trade such virtual currencies. Though it looks like it has been ‘resolved’ for now, any hostile forthcoming developments may result in you getting burdened with an illiquid asset.
Besides, now that crypto markets are not regulated, if you invest in cryptocurrency and fall victim to fraud, you have no one to turn to for support, help and assistance. Yes, these exchanges can turn out to be phony/bogus and their founders can vanish. And if it is a new crypto coin, it can even turn out to be a tissue of lies.
Going by Ian Taylor of CryptoUK,
“There are a lot of criminal operations and scams that target people and it’s very imperative to recognise that in an unregulated market there is no recourse.” (Source)
This is why although old-fashioned, it is often suggested to first stick to a thoughtful mix of fixed incomes and equities for the predictable future to meet your financial goals and only then invest in highly volatile financial assets like digital currencies as one can lose every money invested in it. For instance, investing money only that you can afford to lose.
Nevertheless, investing is about setting you independent and free, not making you addicted to a trading screen. And if you want to invest in safe instruments that are most likely to help you with your financial goals, wealth creation and/or if you want to retire rich, kindly call us at +91 9820926446/7977061717 or mail us at chandrakant@ghanchiinvest.com
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