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Is Cryptocurrency Investment or Gambling?

Cryptocurrencies, most noticeably Bitcoins, rarely leave the headlines. Slumps and spikes are followed closely by millions of crypto-owners worldwide. Cryptos are no longer exclusive to tech geeks; many individuals and companies see them as investments. However, the rollercoaster-like behaviour of cryptocurrencies imposes a question: is it investment or gambling?

Walking on Eggshells

Few assets are as volatile as cryptos. A few days ago, Bitcoins went below the USD 30,000 line for the first time since JulY 2021. The nosedive was due to a complex combination of long-term and short-term events, plus the crash of a stable coin. At least, that’s the explanation given by market experts. For the average crypto investor worldwide, it came out of the blue.

The financial market has always been ruthless, but cryptos have increased volatility. In comparison to cryptocurrency investment, there are still ways of playing it safe in an online casino. If you bet on red numbers in a roulette game, you know that your chances of winning are nearly 50/50.

There’s no way of saying so with cryptos; anything can happen. Their value is speculative and can change according to the situation. Cryptocurrencies are decentralised currencies, which means it’s not regulated by any national bank, country, or financial institution.

Unlike fiat currency, the value attributed to cryptos isn’t anchored on any real-life asset, such as gold, lands, or another commodity. Instead, cryptos must be “mined” via incredibly complex calculations processed by computers.

Pixabay

The Pizza Day

The first bitcoin transaction in history became known as the “Pizza Day”. In 2010, a California guy named Laszlo convinced a local Papa John’s to trade two pizzas for 10,000 BTC. It looked like a bargain back then; today, it could make Laszlo a millionaire: USD 299,606,000.00. That’s how much bitcoins have increased in 12 years. No other asset has increased so much in such a short timeframe, but it also tells volumes about its volatility.

A Distant Mirror

Market bubbles aren’t new in human history. Let’s consider “tulipmania” for a moment. Tulipmania was a bubble created in the 17th-century Dutch market. Dutch tulips were all the craze at the time, and some people would go as far as investing six times the average yearly salary to buy one. Indeed, some of the rarest buds could cost as much as USD 750,000 in today’s money.

The tulipmania went on for about three years, between 1634 and 1637. During this time, entire fortunes were invested in it. Investors bought them using margined derivative contracts, and massive loans, buying way more than they could repay. After all, tulips were an easy investment. No one suspected that this bubble could ever burst, or even what a market bubble was at that point.

Dutch investors from the period learned it the hardest way. As soon as prices began to drop, investors rushed to liquidate their bulbs, plunging prices even deeper. Many investors were left bankrupt, with unpayable debts and worthless bulbs. The tulipmania vanished into thin air the same way it came into existence. Could that be the future of cryptos?

Too Big to Disappear

If it’s true that a simple tweet shakes cryptos (from, let’s say, a guy like Elon Musk), that fact is that cryptos are now too big to disappear. International companies of all industries and even entire countries are joining the crypto trend. It turns out that cryptos can be seen as an investment, although with a lot of care.

The main difference between investing and gambling here is how long you’re willing to stay in the game. Although cryptos have already made some investors rich overnight, it’s not an investment plan. Buying cryptos for short-term gains looks very much like gambling, chiefly because you can get caught in a bad moment, like in the recent crash.

However, if you have long-term goals for your cryptos, then we start talking about investment. Nevertheless, some golden rules for gamblers also apply here. First of all, never invest money you can’t lose. Putting your life savings into a crypto-wallet definitely falls into the gambling category, no matter how long you plan to keep them. Here are some basic requirements for investing in cryptos responsibly.

  • Do it from a financially stable position
  • Don’t risk money for essentials on it, expecting short-term gains
  • Invest in different cryptos, not only one

A Matter of Perspective

Cryptos’ volatile nature makes them feel like slot machines. Still, it’s possible to take them as investments, as long as they don’t threaten your financial health. Although a crash like the tulip crisis seems unlikely, putting all the eggs in this particular basket is highly inadvisable. Less advisable still is to invest in this market without proper knowledge of its developments. In this fast-developing landscape, the market can have a change of heart at any moment.

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