Should I invest in Cryptocurrency?

 Last few weeks I have been flooded with calls of friends, collegues and clients alike. All of them have just one question on their minds. Should I invest in Cryptocurrency? Should I book my losses/profits? Will Bitcoin further rise?


To answer this decisively, lets understand the environment we are in. Every social media influencer I know, from Tanmay Bhat to the miss teeny weeny,all of them have either been sponsored by a crypto market service provider or are just willingly entering this fad to discuss Cryptocurrency. They go out of their way to explain how this works? For educational purposes we do learn about block chain and cryptocurrency out of this free content. However they fail to answer the question , WHY IS THE VALUE RISING? WHAT HAS CHANGED THAT LEADS FOR THE WORTH OF SOMETHING TO JUMP FROM $ 7000 USD TO $ 50,000 USD IN UNDER A YEAR?



The answer can be found from the countless times, we, the retail investors have been cheated out of our hard earned money. There are tips in stock market that this stock is going to shoot up a 1000 %, even Mr Jhunjhunwala has bought this share, and what do we gullible idiots do?. Buy exactly the same share, look at Gamestop in USA.

A recent video tweeted by Mr. Elon Musk shows how humans evolved from trading in barter i.e a bag of rice for work you do for me to exchanging gold and then currency. This, however true, does not justify rise of cryptocurrency. No point in human history has gold exchanged on one day been at $1 and risen to $ 100 the next day. These currencies being means of exchange have slowly and gradually grown in value inline with inflation and their overall supply in the market. Is that the case with bitcoin or ethereum? the answer is a resounding No.



Lets look at it from an investors perspective. Is bitcoin or ethereum a company? will it publish its results and show that their profits have risen from x to y which will boast its value. The answer again is no. then how are you, the investors determining it to be valued at $ 50,000 USD. Does scarcity or it being a secure way of transacting the only reason why you value it that highly?. The same can also be achieved by a piece of paper called contract. Its been here since ages. Further your bitcoins might be a great investment but your broker may be a fraud. As there is no regulatory authority monitoring this market the oversight on this sector is minimal.

The other arguement I get from my Crypto fans is that same stands true for Indian Rupees and US dollars, then why is Bitcoin bad and US Dollars good? The answer is pretty simple. Ask any economist and they will tell you that if US federal treasury decides to print unlimited currency the value will automatically go down drasticallly. This, thus ensures that any malpractice is curbed on a larger level. Take the example of Venezuela. And I also do not subscribe to the idea that the intermediary. ie. the Goverment or the Federal banks are the problem which Crypto currency aims at solving. 



In the larger scheme of things government is us. Same way unless bitcoin was mined across thousands of computers it would loose its transactional authenticity. I have purposefully stayed away from defining or decribing a cryptocurrency or the technology behind it, as there are thousands of articles and videos on it. I write this article to stir your old intuition in asking the right questions before you invest.

I may be wrong. The next billionaire can be around the corner who will buy his ferrari with the bitcoin gains. However I subscribe to theory of Investing in Things that I can see, overview and control. And as Mr Buffet always says whenever there is panic you buy, whenever there is a rush you exit. So this rush to understand, buy and subscribe to cryptocurrencies makes me wary of this investment and hence this author remains miles away from this category of investment.



I would love to answer more questions if you have any. Please do share your experiences in the comment box below.

You can follow me at https://www.instagram.com/saranshdey/. Next week lets discuss on  stocks we all should have.

 

- Saransh Dey

CA, LL.B, MBA (IIM-K), B.Com

Comments

  1. Unknown28 February 2021 at 08:19

    Very well explained Saransh. Its foolish to expect windfall gains and ultimately it leads to frustration. Slow and steady is the tested principle even in this digital era.

    ReplyDelete

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