The Dangers Of Investing In Cryptocurrencies
There’s no wonder cryptocurrencies are in the news a lot at the moment. The most well known one, Bitcoin, increased in value from less than $1 in 2010 to almost £20,000 at its peak in 2017. So let’s take a look at cryptocurrencies.
What Are Cryptocurrencies Exactly ?
A cryptocurrency is quite simply digital money. Just like conventional money you can save it, send it to or receive it from others, trade in it and (with some cryptocurrencies) use it to buy and sell things. But it’s all done digitally, with no paper money or coin equivalent.
And this is the most important thing: Cryptocurrencies are decentralised and autonomous. Unlike conventional currencies they’re not issued or backed by a country.
Bitcoin is the most well known cryptocurrency but it isn’t the only one. There are around 1,500 others, including Ethereum, Litecoin, Monaro, Ripple, Cardano and Stellar, which are generally known as alt coins. They’re not all the same. For example, Ethereum works in a totally different way – it has become more widely known since its value soared around 13,000% in 2017.
Are There Any Good Things About Cryptocurrencies ?
Apart from seeming like an easy way to make money, fans of cryptocurrencies will tell you that they love the fact cryptocurrencies aren’t controlled by governments or politicians. They can’t manipulate them, print extra ones, devalue or cancel them. Bitcoin, for example, is produced using a process known as ‘mining’ which governs how much is in circulation.
Cryptocurrencies should offer an element of security. Bitcoin, for example, uses sophisticated blockchain technology to prevent it from being forged or stolen.
Cryptocurrencies are also thought to be anonymous and untraceable – although that’s not necessarily true.
For these reasons cryptocurrencies are often popular in countries with unstable governments, and/or high inflation. And, it has to be said, they do have a certain appeal to criminals too.
What Are The Dangers Of Cryptocurrencies ?
Cryptocurrencies are volatile. And not just volatile but super volatile. After a huge rise last year the value of a Bitcoin had dropped from $15,679 to $10,642 in just over a week at the time of writing. That’s a $5,037 loss for a single Bitcoin in a single week!
Trading in cryptocurrencies could be restricted or even banned in future. Governments don’t like the fact that they can’t control them. South Korea is planning to ban domestic cryptocurrency trading. And that could cause a market crash. (In fact South Korea merely making that announcement saw Bitcoin’s value dive.)
The risk of a cryptocurrency ‘bubble’ is huge. As cryptocurrencies are becoming more widely known about amateur investors are being attracted by the tales of the big gains that some people have made. So there’s the risk values will soar way above what is sustainable. And that could mean a bubble that is just waiting to burst.
Cryptocurrency as a concept is absolutely wide open to scams. There have been cases of new cryptocurrencies being launched and promoted heavily online as the ‘next big thing’ to lure unsuspecting investors. A significant number of cryptocurrencies have become effectively worthless.
So, although some might disagree, it’s really difficult to see how cryptocurrencies can be considered as an investment, or a really reliable place to put your money. They’re probably best considered as a gamble and best suited to gamblers who accept the risk that they could lose their money.