Cryptocurrencies have recently dominated not just the headlines, but also the hearts and imaginations of millions of intrigued investors.
The question on everyone’s mind – should I jump in, or should I stay out?
Our Head, Wealth Management, Maxine King, seeks to answer that question for you. Get into it below!
This article is a 5 min read.
In January 2021 via a U.S. SEC Filing, Tesla advised that it had purchased US$1.5Bn worth of Bitcoin. The announcement of this action prompted an immediate price surge, with year to date price increases of above 95%.
Elon Musk advised that it was a better way to deploy cash as Fiat currency provided negative interest yields. One analyst calculated that he may have made US$1Bn in paper profits from the move, much more than he would have made in profits from selling electric vehicles (EVs).
As an engineer and entrepreneurial personality, Elon draws the attention of many professionals who were lured into the Crypto mania frenzy by a serious bout of FOMO (Fear of Missing Out) based on the price rally which started in April 2020 and continues.
I received calls from quite a few individuals in the legal, medical and other professions, who receive steady and significant sources of income and had surplus funds to invest. Their goal was to make fast returns and quick wins via capital gains. They wanted to know if to jump in. One even shared with me messages from a trader on the NYSE, clearly bullying him to invest in bitcoin “right now”.
Curious about my response? Well it varied depending on the individual but I asked many of them these questions, geared towards provoking thought:
To date, no evidence has been provided to demonstrate a correlation between Bitcoin and gold, equities, bonds or commodities even though for the latter the Chicago Mercantile Exchange has allowed Futures and Options Trading in the US.
It also appears that transaction costs are now higher than those incurred using payment systems such as Visa and Mastercard. This was not the case when Bitcoin was introduced as an alternative payment system several years ago. Back then it was touted as incurring way lower transaction fees.
Many academics have likened the Bitcoin phenomenon to a “bubble” without staying power that will soon burst. Some refer to it as glorified gambling.
Bitcoin prices went down along with all other cryptocurrencies at the onset of Covid-19 and some of those in academia opine that prices have begun to surge as a result of wealth sheltering and price manipulation. They do not believe that it can be used as a hedge against tail risks such as inflation.
It is also felt that the boast of decentralization, which bypasses the centralized control by regulators and central governments is a sham in that the proof of work (mining) is centralized in three or four geographies including China and Russia and that the wealth creation is centralized around five large firms or Exchanges.
Added to these concerns is the absence of transparency, regulations, standards and an inability to see or touch.
What all of this suggests is that as a small investor, compared to the large institutions playing the field in that ecosystem, you merely get the crumbs.
