5. Cryptocurrency Investment Concerns
1. Intervention of government authorities that want to regulate cryptocurrency, mainly due to concerns of possible corruptions or frauds.
Recommendations:Embrace the upcoming regulations, not fear them.
Remarks:Cryptocurrency market will not become the only regulated market, stock exchanges and banks etc. went through the pain as well. Some regulations are reasonably needed to protect the investors, to prevent the money of us taxpayers moving into the pockets of corrupted individuals. Will you as an investor feel at ease to place most of your savings into un-regulated crypto exchanges to trade?
When the financial industry was established at Wall Street in 1792, government introduced regulations one after another. It was logical, its citizens and investors need to be protected. Wall Street eventually flourished to what it is today and gave birth to the modern New York Stock Exchange NYSE.
17 May 1792 - Wall Street
Do some search for crypto news on your web browser (Eg. Google search for the crypto coin of your choice, then click the news tab). Near to none of the wealthy countries stated that they are banning cryptocurrencies outright, those countries merely stated the possibility of regulating it. When regulations do come, embrace them, ignore the FUD (Fear, uncertainty and doubts) news and messages created by the pump and dump groups or by banks etc.
Cryptocurrencies and blockchain may eventually eliminate banks in the long run, therefore banks hate cryptocurrencies, and their directors will create or use every opportunities to try and degrade cryptos. However, other than creating FUDs or block banking accounts that transfer fiat money for the purpose of transacting cryptos, they can’t do much nor regulates.
Back to the government regulations, most of the regulations target frauds and encourage accountability of trading accounts, those regulations do not stop trades completely. After regulations matured, investors will feel comfortable to invest more into the cryptocurrency market.
Take a look around. Is it true right now that most of the folks you know, including possibly yourself, still have some concerns on how safe it is to invest in crypto? How many of your friends, relatives etc. invested in cryptocurrencies vs the percentage of them investing in securities - like stocks, bonds, mutual funds etc? The answer should be minimal, partly because of its infancy and partly due to the lack of regulations.
In the long term similar to the NYSE, the cryptocurrency market will mature and flourish, investors will eventually flocked to the crypto market after regulations kicked in. Avoid the short term investments if you are unsure. Your investments will less likely be manipulated by the volatile swing nature of cryptos caused by speculators, sharks, pump and dump groups if it is a long term investment on a cryptocurrency with promising technologies. Research and focus on nothing else but the technologies, the people that are leading the project, the coins with the potential of mass market adoptions and you will less likely go wrong.
2. Possibility of hacking and stealing of cryptocurrencies. Just like any other industry, cryptocurrencies are also susceptible to getting lost or stolen.
Recommendations:Embrace existing and upcoming regulations mentioned above. Use only regulated exchanges, and exchanges in countries that are crypto regulated [ Read Cryptocurrency Exchange Guide ]. Keep your crypto coins into paper wallets [ Read Cryptocurrency Wallet Guide ].
Mt. Gox exchange was reported to have $473 million worth of bitcoins stolen in one of the biggest hack in the history and more recent, $72 million worth of bitcoins were hacked in Bitfinex, those bitcoins were reported to have been taken from user segregated wallets. These kind of hacks usually happened after hackers gained entry into the company’s bitcoin wallets that had all the deposited funds. In April 2017, Bitfinex announced they had paid back all customers lost funds.
Exchange hacks may also be the result of scams. A company offered cryptocurrency exchange service and customers deposited into their accounts to trade. All of a sudden one day, the company vanished. The company may announce that the exchange had been hacked but in actual, they have just pulled off an exit scam.
Is this one reason why investors should avoid investing cryptocurrencies? No. There will be risks of failures, frauds and hacks in any types of investments. Take a look at the following examples.
1. The largest financial fraud in U.S. history belongs to once the largest hedge fund in the world, Bernard Madoff Ponzi scheme. The size of the fraud was estimated to be $64.8 billion, based on the amounts in the accounts of 4,800 clients as of November 30, 2008. That is about 900+ times more than the amount lost at Bitfinex.
2. In Oct 2017, Hackers stole almost $60 Million from Far Eastern International Bank in Taiwan by planting malware on the bank servers through the SWIFT interbank banking system. The incident followed the theft of $81 million from Bangladesh’s central bank in 2016.
3. Even bank deposits are not risk-free. Singapore, regularly rated as the country with the lowest crime rate in the world had an international bank robbed in 2016 by a man using just a note, the man successfully exited the country with the money. Imagine what a large scale cartel can do. There are countless cases of banks in the world being robbed, go google the news.
4. Municipal bonds are regularly viewed to be low risk. Unfortunately, the Washington Public Power Supply System (WPPSS), was the largest municipal bond default in history. WPPSS was unable to pay back the full $2.25 billion defaulted debt to their bondholders in 1983, recovering only 40% from their municipal bond disaster.
3. The volatile market of cryptocurrencies
Recommendations:Understand the reason why cryptocurrency market is volatile.
As of today, there are minimal or near to zero actual uses of cryptocurrencies except being traded around. Thus, the existing values and prices of cryptocurrencies are all about speculations.
When the market is entirely on speculations, the price will be highly volatile especially to a crypto market still in its infancy, since every bit of news, be it real, fake, good or FUDs etc. may change most or all investors’ prediction for the next price of their coins causing them to mass pull out or swarm into respective cryptocurrencies.
On the other hand, if there are mass actual uses of coins, users will need to keep those coins eg. to pay their monthly bills, cab fares, meals or whatever. Price will eventually become less volatile as coin use grows, since owners will be less inclined to sell away the coins.
And there are beneficial reasons for users to pay or transact with crypto coins eg. cryptos are more secured with cryptography and decentralized blockchain means no one can manipulate or duplicate the currencies. So the long term possibility of mass use is there, but it will take time and investors should not think they will get rich overnight with crypto investment. Patience is the key.