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Is cryptocurrency a smart investment?

There’s a new craze across the globe and it has nothing to do with fashion or entertainment. It’s called crypto currency, and it’s quickly becoming a transcending force on how business and e-commerce will evolve. This digital decentralized currency has made great strides since its inception in 2009 and has since seen steady increase in its use. I’ve been bombarded with people asking my views and opinion on the currency. So, here goes.

Cryptocurrency is a digital currency that uses encryption techniques to regulate the creation of additional units. The currency is verified by people known as “miners” through a shared public register and can be transferred or used to purchase goods. Cryptocurrency is virtual and self-regulated, operating independently from a central bank. It’s basically dictated by supply and demand.

So what is it about this new type of currency that has the world intrigued? Well, it’s very simple: the exponential return on investment that many cryptocurrency investors have seen at the end of 2017. Let me put it in perspective – if you had invested a mere $1,000 in Bitcoin back in August 2010 and cashed out in August of 2017, you would have earned about $50,000,000. Those kinds of returns on an investment would spark interest in veteran and conservative investors. All traders and investors would take a serious look at the product and its details. There are over a thousand digital currencies that have been created so far, but the first and still most profitable digital/cryptocurrency is still the original Bitcoin, not Bitcoin Cash. Many persons like me feel that the “Bitcoin” bubble has popped, and its best days are behind it. The real focus should now be on the smaller upstart cryptocurrencies in developing countries that struggle with currency circulation and frequent devaluation of their national currencies. Those factors play into the original reason why cryptocurrencies were created, which was to protect money from banks due to possible online fraud, transfer fees, inflation rates and bankruptcy. A few other small upstart cryptocurrency companies to take a serious look at are Dash Coins, LiteCoin and NemCoin.

Most governments haven’t fully devised a comprehensive position on cryptocurrencies, but it’s very interesting and revolutionary for the government of The Bahamas to take a serious look into investing in cryptocurrency. The minister of finance recently stated that the ministry will be looking into possibly investing in cryptocurrency, which will surely be groundbreaking for the country. Cryptocurrencies are very volatile, and recently there has been a free-fall for most of the top cryptocurrencies on the New York Stock Exchange. This is a huge concern for investors because prices stem from what people believe they are worth, and, if something undermines that belief, it can spell disaster. The only way to possibly make money from buying cryptocurrency is by finding someone who would pay you a higher price than the one you paid for the currency originally.

Despite this ray of hope in potential investing, I do believe that central banks all over the world will soon stand up and impose their will on the cryptocurrency market. These banks won’t allow this unregulated market to continue with no recourse. World Bank Group President Jim Yong Kim characterized cryptocurrencies to ponzi schemes and world-renowned hedge fund manager Warren Buffet recently stated that the cryptocurrency industry will come to a bad ending. So I would advise Bahamians to tread lightly with investing in cryptocurrencies, because most indicators predict that the collapse is eminent, and I tend to agree.

 

  • Quinton C. Lightbourne is a certified financial planner with the Chartered Institute of Bankers in Scotland and presently works with the investment and financial services team of a local law firm.

 

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