September 23, 2020

Cryptocurrency - A safe Investment or an interesting trade?

The principles of investing and trading are quite contradictory to one another yet they sound and get understood to be alike. Before we categorize cryptocurrency on this scale, let us first clear the basis of investing and trading.

Trading involves speculating the market scenario by identifying the trends and then taking action in terms of buying and selling stocks particularly aiming to book profits.

On the other hand, Investing involves long-term planning, which is based on buying stocks of a company after vigilantly researching and scrutinizing the business and operations of that company.

The principle of investing lays down some clear standard boundaries which can be looked forward to analyzing that your business journey in the coin market to be progressed or stopped. Let's look at some.

Does cryptocurrency meet the standard of an investment?

The main question is whether investing in Bitcoin or Ethereum and the other cryptocurrencies meet the industrial benchmarks of an investor?

Why cryptocurrencies are not considered safe for the action of a prudent investor? But how it can turn out into something adventurous; to risk a little money into them from an uncertain business point of view?

We did some in-depth market research of Cryptocurrency in the industry of investors, but the answer we got from most of the investors weren't satisfactory. Most of the people were still confused regarding its working, nature, and investment assurance. Cryptocurrency isn't a bar of easy chocolate to buy, but they are the dark cocoa to understand and invest in.

The primary rule of investing requires the buyer to have the utmost knowledge of its investment target. But when it comes to cryptocurrency, these principles are hard to abide by. The management of cryptocurrency, its mission, the trend, the history, the track record of fluctuation, and the fundamentals it works on are undefined, uncertain, and lack predictability.

The cryptocurrency market is complex and moving fast and a novice thing for most of the investors. The launch of the first cryptocurrency dates back in 2009 making it just a 10year old practice and even those who are continuously watching this proactive investment also fail to understand some aspects of it. There is no set management or trend, method, policy, or regulation behind but it is a real technological market.

Therefore, intelligent and experienced investors always deny investing in cryptocurrency, as this is something one cannot fully understand and the risk-taking on the limited information available on the cryptocurrency makes it relatively less credible. Also, there is no tax benefit involved in it.

The second rule of investment calls to make sure that the carrying company has delivered high-quality cash flow returns for the minimum of the last 10 years or so? Since it takes the duration of its introduction, therefore we can't risk our investment on a thing which cannot even hold to show a reliable trend. Cryptocurrency can be regarded as an asset just like gold, silver which can be owned at a particular price but its value keeps on fluctuating according to the market demand and supply. And these forces work internationally and are not limited to the national boundaries or borders. The price of cryptocurrency is determined by the world market.

Lack of Certainty

Whenever we invest in bullion, we first expect or try figuring out what is the future cash flow of this investment. Don't we measure or speculate, whether it will be higher or lower than at what we are buying today? Or am I buying it at a good price that reflects a margin of safety which is relatively not possible with cryptocurrency? We cannot in any way find the margin of safety price. All we have is to look at the price at the beginning and at the end of the year which also does not give any surety in its business.

The crypto market is inexplicably volatile, which is deemed good for trading but not suitable for long term investing. Certainly, the crypto market can be reported to be one of the most volatile markets in the world. The price of Bitcoin for instance if been looked through has been doubled in a matter of months, than have been cut in half in a matter of weeks then doubled in a fold of weeks, and then got cut back in half in the next fold. This volatile nature works for traders who keep an eye on it regularly and short it as and when earning a good fortune. But this is not entirely healthy for investors of long term capital. This kind of volatility and uncertain long term preposition cannot be handled with money you can't afford to lose.

But ironically people who want to earn some miracle money foster more towards this trading market. And the volatility does not spare them too. And they may even come to lose their hard-earned money with which they came to earn more. Losing some thousand or 2000$ might not be a big thing for a healthy investor but losing their lasting pieces of income in greed to make more money might be fatal. For a healthy investor too, losing 2000$ might not be very much but losing 2 lakh $ will turn into a tragedy.

An investor always looks for something to trade that they can get an edge on. When we look out for options trading which is also actively traded in the market, we can get an edge by knowing the value of the business compared to the price when the options market only prices it as if the value and the price are the same things so when we can trade options with an edge then we can make money pretty consistently but the question that arises is how do you find your edge in cryptocurrency?

Think about an answer carefully before investing. If you are thinking to trade in crypto coins, you should figure out where lies my edge as cryptocurrencies have a technological basis which makes it really valuable but equally hard to understand.

Figure out Ripple, there might be a real technological advantage to that which could process value someday. Therefore, one needs to look at all sides of the trade and try to figure out what is the best way to trade this. But certainly, cryptocurrency cannot be considered as an investment. More and more it can be considered a reasonable trade that is now in fact traded on the CME with options and all the other kinds of investment commodities which can be regarded as a huge breakthrough for cryptocurrency fans.

On the other hand, when you have to make money and you are not Warren Buffet, trading something like crypto might be right up your alley, since it carries the highest risk with a higher return policy.

A Safe Investment

When it comes to safe investment prospects, the traditional investments lead the show. They are considered as the actual investment besides the virtual investment in Crypto coins. It includes the Debt Fund, Equity Fund, Gold, Share, Property, FD, PPF, etc. The speed of growth here is relatively slow but somewhat predictable. Some calculations do exist here; only known to expert traders and brokers.

• They are comparatively predictable and less hard to understand.
• One can research and analyze the situation of the company before investing.
• They can be converted into liquid cash anytime.
• One can plan their investments for the long-term.
• Higher credibility as millions of people daily invests in it on regular basis.
• It carries a detailed track record and is comparatively stable.
• A Tax benefit is also available.
• Regulated and monitored by the government.
• Insurance can be made for investments.

What is the risk Involved in Cryptocurrency?

The widely rumored news of getting your crypto investment hacked is not true. There is a decentralized system that regulates the crypto-trading network. You can look into detailed information regarding the same in our blogs namely:

The risks involved here are reduced to the minimum. One can freely but cautiously trade cryptocurrency over the network. The system package is quite strict, credible, and is expanded globally. Still, as it involves digital currency and trading, some hacking risks do exists which is even the case with traditional Demat accounts for which cryptocurrency cannot be partialized. However, the risk of volatility cannot be ignored.

I hope the information provided above gave you the relevant insight into cryptocurrency and its investment nature. One can take their decision based on financial robustness and the amount of risk one can bear. What to choose in the end relies on you and your risk-taking abilities, either you would want to choose the sluggish, yet predictable traditional Share market or the fast but unpredictable coin market. Lastly, we would like to summarize:

Why you shouldn't invest in cryptocurrency?

• They are hard to understand.
• The crypto market is too new to analyze the trend.
• The market is too volatile.

Now we would like to hear from you people, what do you think it's a safe investment or do you think it's an interesting trade? Leave a comment below with your answer and we will have a requisite follow up with you. Thanks for giving this blog your precious time. Have a nice day.