Investment Potential

Sep 26, 2018 By Katherine Flores

Does a Cryptocurrency “Crash” Mean Time to Invest?

Is crypto even an investment really?

First things first, let’s clarify terms. Even digital currency experts advise against even thinking of it as an investment. They claim that smart cryptocurrency users think of it as play. So, it’s a game more than an investment, according to experts. Remember back in the day when people talked about playing the stock market? That’s because there aren’t guarantees. Risks and potential rewards, sure. But nothing is certain. It’s a free market game after all, not a fixed system …like pro wrestling.

The same goes for cryptocurrency because the only fixed part of the system is the number of certain types, like bitcoin. But even that doesn’t provide any guarantee. Sure, with a limited supply, demand may rise and thus value/price could increase. However, lots of other factors might alter that course. For instance, the simple fact of altcoins. Because there are other types of digital currency, consumers or investors could just use them instead. Given the Six Flag feelings of 2018 in the crypto currency market, even experts are using every caveat they’ve got while talking about it.

Still, cryptocurrency’s a fun game that’s ever popular too - even as its alleged “crash” cycles the daily news like a hamster wheel. In fact, a recent NY Times article cites the impact of virtual currency companies on northern New York towns. Turns out, so many crypto startups have moved to the region the power grid strains with the newfound burdens.[i] That’s because the process of making bitcoin or altcoins takes a lot of electricity. In fact, the reason these companies are choosing northern New York towns is the low power costs. The ironic result? Their presence raises the town’s electricity costs. This is just one example of how digital currency affects the tangible world. It’s not just virtual economics anymore.

  1. So, should I buy low sell high with it? Isn’t that “playing the market?”

This overly reported “crash” of digital currency in 2018 isn’t quite parallel to a stock market crash. Sure, we’re all hearing the stories like the one about a middle-aged Korean teacher cited in the NY Times.[ii] She pooled all her resources, including a significant loan to spend $90K on bitcoin that’s now plummeted 90%. But keep in mind; these stories are as anecdotal as they are fascinating.

Truth is, no matter how you look at it, everyone needs to be responsible and thoughtful with money. This is especially true in the unchartered waters of cryptocurrency. Never forget that it’s a zero-sum game and play accordingly. Let’s think of it as a poker game. There are no winners beyond the sum of the game’s parts. In other words, the only way a buyer at today’s bitcoin price of $6,400 can avoid “losing” would be if another consumer wants to pay more than that. That’s because buying cryptocurrency isn’t actually like buying company shares. You aren’t buying into a value-creating business. The only way to “win” is to pay less than the next person in line for the same purchase you just made. You’re a player, not a shareholder.

Still, the differences with cryptocurrency have perks, like the tax laws that can work against company shareholders but don’t apply to bitcoin buyers. Bitcoin and altcoins also have unique perks, like the fact that early adopters benefit the most. There’s also intensity and excitement in the inherent ups and downs of the game. Our advice is to keep those ups and downs in mind when you start to think about virtual currency as an investment. Go ahead and enjoy the ride. Just don’t forget it’s a carnival and not a highway.

Fact is, many are lured into crypto because they smell “big winnings” and that’s because  it’s certainly happened before. Still, people also sometimes win the lottery. That doesn’t mean we should consider it an investment. So, no matter what brings you to cyrptocurrencies, keep them in their place. Be responsible, yes. But more importantly, be aware that it’s really just a game you’re playing. That way it won’t play you.

[i] https://www.nytimes.com/2018/09/19/nyregion/bitcoin-mining-new-york-electricity.html?action=click&module=Top%20Stories&pgtype=Homepage

[ii] https://www.nytimes.com/2018/09/19/nyregion/bitcoin-mining-new-york-electricity.html?action=click&module=Top%20Stories&pgtype=Homepage