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PHILosophy – Cryptocurrency Bubble

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The hype around Bitcoin and the rest of the cryptocurrency market has been very intense over the past year or so. Even if you’re not involved in Bitcoin, you would’ve already heard that it had risen more than 1,000% in just one year!

I’ve got be honest… I don’t understand the product and for that reason, I haven’t invested.

My gut feel is that it is yet another fake boom which will come to a screaming halt before long. That may be 6 months or maybe tomorrow, who knows?

In the meantime, I will watch with interest and will no doubt regret sitting on the sidelines at times.

The question in my mind is, what value is there for the investor?

In all the articles I’ve read on the subject (I’ve read quite a few), many suggest that cryptocurrencies don’t even fulfil their own stated purpose as a “currency” and the key tests crypto’s fail when compared to fiat currencies are:

They aren’t generally accepted

They aren’t stable in value

They aren’t supervised i.e. by a Government

They have no intrinsic value

In time, crypto’s may pass these and many other tests of an acceptable currency, but in the meantime…they don’t!

Nouriel Roubini, a Professor of Economics at the Stern School of Business, made some valuable points about cryptocurrencies in an article that I read recently that suggests there’s an ongoing revolution in financial services, but Bitcoin has nothing to do with it.

Roubini explained that “No one prices anything in Bitcoin…

“For money to have value, and to generate economies of scale, only so many currencies can operate at the same time.”

Roubini then goes on to suggest, “the idea that hundreds of cryptocurrencies could viably operate together not only contradicts the very concept of money; it is utterly idiotic.”

“But so, too, is the idea that even a single cryptocurrency could substitute for fiat money.”

Due to the fact that cryptocurrencies don’t even live up to their own stated purpose, Roubini suggests that people should start investing in Fintech firms with actual business models, as this is where the financial revolution is taking place.

The number of articles for and against the cryptocurrency market continue to pop up on our news feed each and every day.

I mean, sure! If you have been fortunate enough to make a small fortune out of your crypto investment, you are going to laugh at what I’ve just written.

I’m just suggesting caution if you plan to dabble. Understand that anything which rises by more than 1,000% in a year can fall by 100% almost overnight… it has happened before and will happen again. In fact it’s happening now!

News from this morning (6th February 2018) suggests that Bitcoin dove below $US6,200 for the first time since November and all the major crypto as the global regulatory crackdown continues to weigh on prices.

In my opinion, cryptocurrencies will never truly be worth anything unless they are legalised by governments and the only chance of this happening is if they’re able to control it.

Just like most people, I am an amateur when it comes to knowing what cryptocurrencies are all about, but in any type of investing that people take part in, they should have some understanding of what they are investing in and only use money they are prepared to lose.

As Ross Norman, a gold dealer said in an article about Bitcoin, “[it’s] a bit of a lobster pot – it’s easy to get in, but hard to get out.”

And on that note, I’ll leave you to ponder the world of digital currencies.

Cheers,

Phil

 

Please note: Data in this article was current as at 1.00 pm on Tuesday 6th February, 2018. No doubt it has changed in the time it has taken to reach your inbox.

To view Crypto Live visit https://datadigger.com.au/crypto-live/