The Rise And Fall Of The Coin

Bitcoin, the original cryptocurrency, has been on a wild ride since its creation in 2009. Earlier this year, the price of one Bitcoin surged to over $60,000, an eightfold increase in 12 months. Then it fell to half that value in just a few weeks. Values of other cryptocurrencies such as Dogecoin have risen and fallen even more sharply, often based just on Elon Musk’s tweets.

Just recently, Terra(Luna), a UST stablecoin, which ranked among the top 10 most valuable cryptocurrencies, dropped below $1 in just 24 hours, having peaked close to $120 the previous month. That is a fall of a whopping 99%, wiping out the fortunes of crypto investors!

Stablecoin may not be so stable as it seems. And these may be some of the underlying flaws of cryptocurrency.

No Real Value

For something to serve as a store of value, it has to be liquid, universally accepted, and have a stable value.

Stocks have real value because of the companies’ ability to create profits from the goods and services that they sell. Commodities have real value because industries purchase them as raw materials to use in the production of goods and services.

The only value that bitcoin has is in somebody else willing to pay a price for it. In that sense, it is like a piece of artwork. But even a piece of artwork has the ability to beautify the space that it occupies.

Cryptocurrencies including bitcoin certainly do not have any of these characteristics.

No Stability

All currencies fluctuate in value. This is because the amount of money in circulation keeps on increasing or decreasing in comparison to the assets in the economy.

Central banks go into the international monetary markets to perform “market operations", which is to buy or sell their national currencies in order to keep them stable.

On average, the United States dollar loses about 2% of its value each year because of inflation. This is normal for currencies. However, cryptocurrencies take this instability to a whole new level. It is common for cryptocurrencies to lose 30% of their value within a single weekend.

In the past couple of years, cryptocurrencies have been extremely volatile. They have tripled in value only to come back tumbling down and then rising once again. Also, the drop in value gets triggered by seemingly meaningless events. This level of instability is extreme.

Without stability, a currency does not work. And hence cryptocurrencies cannot be considered to be a viable store of value.

No Regulation

Globally, the regulatory landscape for Bitcoin is a mixed bag: from outright bans of cryptocurrencies, to different forms and degrees of regulation, or no regulation at all.

Warren Buffet also touched on this problem. He said that it did not make sense. This thing is not regulated. It is not under control. It is not under the supervision of any United States Federal Reserve or any other central bank. He did not believe in this whole thing at all and thought that it is going to implode.

China, which used to be the largest crypto mining country, has seen through the smoke and mirrors and has cracked down on trading and mining without reservation. This shows how quickly regulators could destroy the freewheeling, decentralised crypto market.

At the end of the day, should you invest in Crypto?

Crypto is worth investing in – Provided your risk appetite is high.

The market is volatile. Much more so than other forms of investment like stocks, property, forex etc. One tweet or post from an influencer could see a massive surge or steep decline in a coin’s value, seemingly overnight. In such scenarios, you can only pray that lady luck is favoring you!

So if you are willing to accept the risk and volatility, by all means go ahead and buy some cryptocurrency. And who knows? You could become one of the many crypto-millionaires we’ve all read about!

On the other hand…

Crypto is NOT worth investing in – Provided you prefer safer, slower and more secure investments.

In other words, your risk appetite is not that high. Should you invest in crypto, you could have a heart attack due to the volatility!

If your preference is towards more stable investments, stick to the traditional ones. They may be slower in terms of potential returns. But you will not see the price fluctuate up and down like a roller-coaster.

So ask yourself this question: Can you stomach if your investment of $10,000 falls to $100?

Who would have guessed that the promising LUNA would have fall to such a state. Getting rich quick is a really nice notion and many have rode the back of crypto to get there. On the flip side, many are the untold stories of those who lose more than they dare to mention.

My heart goes out to all who did.

There is another method that works and it involves small savings each month towards your financial goal. It is managed by professionals so you do not have to worry about monitoring it. And the companies and products are regulated by Monetary Authority of Singapore (MAS). If you are keen to get started, I will be here to plan out your journey.

Only put in money if you know enough about what you’re investing in.

Otherwise, it’s not an investment but a gamble.