Cryptocurrency - For The Daredevils Only

Having read about cryptocurrency on Straits Time (1 and 2), I think it is widely misrepresented. 

There are some truth in these articles but I believe the concept of asking people to invest in this product is simply just wrong as of NOW.

Reasons being:

1. Marketing being root of all evil.

I think cryptocurrency is a disruptive technology on cash. But people seem to have misunderstood the use of cryptocurrency.

It started as a form of payment and not investing. But a lot of websites started marketing it as a form of investment product (due to cryptocurrency being subjected to free market forces) and people started to buy to keep.

But it is technically useless if a cryptocurrency becomes super expensive.

If a bitcoin is $2k currently, what can you use to pay it? Use bitcoin to buy diamond? Or buy a loaf of bread?

2. Bubble Creation

In addition it gets too expensive, the product will create a bubble. A very dangerous bubble because it is not backed by physical asset, but just technology.

Many people say blockchain cannot be hacked or data cannot be steal. But we cannot expect the same 10 or 20 years down the road.

Who will have thought of that Uber can disrupt the Taxi Industry? If you ask a Comfortdelgro investor 5 years ago, he will have tell you "No way lah! This will not happen!".

Anyway, due to the free market forces being in play, wild swings occur to the prices of cryptocurrency (Read this blog post here). Due to the wild swings, many of the people that bought cryptocurrency are speculators rather than investors.

3. Not widely recognized, government intervention required.

Cryptocurrency is not widely recognized.

For it to be useful, it has to be widely recognised. For it to be widely recignised, we need government intervention such as Japan making bitcoin a legal form of payment system on April this year.

But if more and more people use cryptocurrency, its value will drop. Increase in demand will result in drop in price.

This maybe catastrophic.

Think economics, the cryptocurrency is at its high price due to its niche market acceptance. With government intervention and regulations, things can be catastrophic especially for those holding on to it now. 

But I am a traditional guy (I have yet to use Grab and Uber once) so I could be all too skeptical in this aspect. Furthermore being a value investor, I am not really that much of a risk-taker.

Do note I do not discredit the aspect of a cryptocurrency being a long term potential play. But the "long term" may really be too long and money could potentially be placed elsewhere to have a much more safer and guaranteed return.

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