Will Cryptocurrency Last? Learn What People Aren’t Telling You In All The Crypto Hype
Cryptocurrency. It’s pretty great, right?
I mean who wouldn't want to buy something at a few cents and watch it go to USD20,000!
Like with anything in life, as well as focusing on what people are telling you, you should also think about what they’re not telling you.
In this article, we’re going to take a look at the other side of the cryptocurrency movement to reveal what people aren’t telling you amidst all the hype.
We’ll look past the glamour to discuss the side of cryptocurrency that people tend to avoid, such as government regulation, taxation, banks, the real potential of cryptocurrency as a long term investment, and whether or not cryptocurrency will last.
But first …
Cryptocurrency vs Stocks?
This is the big question: Should you be investing in cryptocurrency, or should you just stick to regular old stocks?
When most people think of investing in cryptocurrency, they tend to think of its poster boy, Bitcoin – and for good reason.
Bitcoin was the first cryptocurrency and it remains the highest valued.
Earlier in 2018, its value was higher than Disney’s market cap, and in 2016 it yielded a return of a whopping 130%.
In fact, between the years of 2011 and 2016, the return on investment from Bitcoin has been nothing short of outstanding and can embarrass any other stock you can think of.
There has been no stock that has gone from a few dollars to ~USD 20,000 per coin.
Check this out: The so-called FANG stocks (Facebook, Amazon, Netflix and Google) have performed well in recent years, but anyone who invested in Bitcoin back in 2011 would have seen their returns hit 22,000% by 2016.
But just because Bitcoin is doing so well, does this mean we should invest in crypto rather than stocks?
Well, the real answer lies with you and your risk profile.
All we can do is provide information that helps you make better investment decisions.
Now the biggest problem that cryptocurrency has is the lack of regulation.
Firstly there is regulation issues on an asset class level.
As you can see from the above graph courtesy of Howmuch.net that cryptocurrency and Bitcoin are still not even accepted as legal tender everywhere in the world.
This clearly is problematic if you are wanting to create a new currency.
Part of this stems from Cryptocurrency growing so fast as an asset investment class that this has caught governments off guard.
Governments are still very much trying to figure out how to regulate something that for the for the first time in the world is truly global.
For the first time in the world a market has opened that is country independent and is a real global marketplace.
This means that a man in Pakistan can be trading Bitcoin with a person from Australia at any time in the day or night.
However, this brings with it a host of Anti-money laundering questions, risks and regulations which governments are trying to madly figure out.
Cryptocurrency exchanges operate 24 hours a day and are not based in any one country.
This is unlike stock markets like the London stock exchange or the New York Stock exchange which are only open for business at certain hours of the day.
Cryptocurrency is a truly global market where everyone in the world who has internet can buy.
All these people can bid up the price of the an asset that has a fixed supply like Bitcoin.
All you have to do is open up an account on your computer which can be done in a matter of minutes.
Now compare this to stocks: Think about how hard it is to buy UK, US or Australian stocks and how you have to wait till certain times in the day and not on weekends etc.
The potential for cryptocurrency is enormous.
But it also poses huge headaches for governments as they figure out how to regulate this asset class.
The second issue is taxes.
Governments are still trying to figure out what their respective stances are on this asset that has seemingly appeared out of thin air.
Is it a commodity is it a currency. Who knows?
As a result you need to be very careful and meticulous records with all the trades that you place.
You need to make sure you know what your governments tax policy is on cryptocurrency.
Do they even have a taxation policy on it yet?
If they don't we suggest you keep records of all transactions you make in case you need to go back and calculate taxes for any profits made on the buying and selling of your currency.
Generally speaking, when you buy bitcoin or cryptocurrency, nothing is expected of you at the point of sale.
However, you will need a record of the price you bought it at to calculate taxes when you sell it in the future.
The tax that you might be liable for in this instance (in the UK) is Capital Gains Tax (CGT).
CGT is a tax on the profit that is made when you sell something that has increased in value (i.e. the selling price minus the purchase costs).
Generally, tax is due it is only on the gain that you have made, not the entire amount you receive from the sale (However, you should seek financial advice from your government or accountant to be sure).
This is why keeping records of the purchase value of your cryptocurrency is so important.
You should also keep a record of any broker or exchange fees paid as the cost of the investment can usually be deducted from your gain.
The third issue is that of Insider Trading.
Insider trading exists in stocks, but there are laws and processes in place that protect people like us i.e. the outsiders.
In the crypto world, on the other hand, these laws don’t exist.
This means developers and other users in the companies can buy huge amounts of coins when they know there is going to be positive information coming.
Similarly, outsiders are vulnerable to pump and dump schemes.
This is where people spread fake news – thanks to social media this spreads like wildfire.
Unsuspecting users around the globe buy on this news and then when prices are high the pumpers or spreaders of the news dump their investment.
As cryptocurrency ceased to exist until recently, existing laws did and court rulings never took into account of Cryptocurrency as nobody even knew Crypto was a thing.
Slowly but surely regulations are coming into force and countries are deciding their stance on cryptocurrency bringing certainty and trust to the market. However, do not be fooled.
Scams & Giveaways
When there is money to be made this often causes the darker side of the human condition to rear it’s ugly head.
Scammers have started creating fake websites and giveaways like in the above which you should never listen to or send crypto to.
Fraudulent Initial Coin Offerings (“ICOs”)
The other main scam is the Scam ICO.
Some scammers have even gone as far as to create fake currencies.
For example they have put up websites saying send me 1 bitcoin and then when the ICO occurs (which it doesn't) we will send you X amount of our new coin.
Don't be fooled the marketing is done really well and you need to really research down to a granular level of the people running the project and the ICO.
Scammers will always exist and you need to make sure you do you due diligence if you invest in at the ICO level.
Whilst risky the returns are certainly there for investing at an ICO level.
However, similar to the internet and IT stocks one could argue that the earlier you invest, (just like with Bitcoin too) the more money you stand to make.
But it is risky.
Just like with Google or Apple imagine if you had of invested in these companies’ infancy you would have made a killing.
However, don't be fooled there is every chance that governments could ban cryptocurrency as it is just too hard to regulate.
Although, we believe this is looking increasingly unlikely as governments seem to be recognising the benefits of blockchain and cryptocurrency.
This is largely thanks to the open, transparent nature of all transactions being recorded on a blockchain.
Combine this with the ability of cryptocurrency and blockchain to speed up the way we do business and promote increased confidence simply makes for a better economy.
One thing is for sure, at the current time investing in stocks tends to have a higher degree of confidence and trust due to the market being more mature and regulated.
However, the downside is it is a lot harder to make money from the stockmarket.
In cryptocurrency you can make 50% in a day. With stocks you will be lucky to make that in a year!
But, if you thrive on that kind of volatility, investing in crypto might just be for you.
Cryptocurrency and Money Laundering
Internationally, no one has yet agreed on how to regulate Bitcoin and cryptocurrency- if at all.
But if confidence in cryptocurrency is to become universal, and if criminal activity – such as money laundering is to be clamped down on then there will need to be some sort of regulation in the future.
At the moment, cryptocurrency is unregulated, and this makes governments nervous about money laundering.
As far back as 2012, the FBI were already indicating that Bitcoin’s lack of regulation made it susceptible to money laundering.
In 2017, the American Department of Justice Drug Enforcement Administration report wrote that “emerging as a money laundering threat, virtual currencies, such as Bitcoin, enable transnational criminal organisations to easily illicit proceeds internationally.”
It’s already been speculated that criminal enterprise has been responsible for the value of Bitcoin, and this will alarm many.
As well as money laundering, cryptocurrency is also at the mercy of extortion, contraband transactions and tax evasion.
Such negative associations can shape public perception for the worse, which can drive prices down.
So the question is: “Do you have much to worry about?”
We think the truth about Blockchain and Bitcoin specifically is that since all transactions ever made are recorded on a public ledger Blockchain this makes Bitcoin hard to use for illegal activities as all transactions are traceable.
Compare this to cash where it can be easy to avoid taxes or launder money at the casino.
It is increasingly looking like that governments will simply enforce all institutions that convert Bitcoin to Fiat currency (i.e. USD, AUD or GBP) to perform KYC or identification checks on these users.
This is much like how they make you get identified at a bank when you open up a bank account.
However, it is important to remember that there is always a chance that governments might turn around and say crypto is too hard to regulate so let's just ban crypto.
While we believe this is a small possibility it is nevertheless a possibility that should be considered.
And for this reason alone why we recommend not throwing your life savings into crypto.
Another possible solution to the regulation problem could be that governments may ban certain coins.
Or for example a government may bring out their own digital currency and then only allow their country’s digital currency to be accepted as legal tender.
Personally, I am leaning towards a world where we have multiple digital cryptocurrencies and that all exchanges are forced to perform identification checks on users.
Cryptocurrency and Banks
In 2008, Occupy Wall Street were on the streets, accusing big banks of rigging the system.
Bankers with their greed nearly brought the world to its knees.
We the public then had to bail out these banks and inject them with our hard earned tax dollars to stop the banks from going bankrupt.
A year later, Bitcoin was launched.
Was the timing coincidental?
Or were the public so sick of banks being manipulated that they wanted change?
One reason why investors are enthusiastic about cryptocurrency is that Bitcoin – the original digital coin – was created to solve the problem that governments and bankers can manipulate currencies.
The role of a bank is to accept a customers deposit(s), raise capital from lenders and investors, and provide financial services and loans to their customers.
However, the current banking system is vulnerable to the manipulation of exchange rates and figures by governments and bankers.
Moreover, because it’s so easy for a Government’s central bank to print conventional money, traditional currency loses its value fast.
Inflation can seriously harm the value of cash too, while bank fees are high.
We live in a world where we get charged by a bank to hold our money.
Then on top of all of these fees, banks lend out our money to make even more profits and get paid huge bonuses to do this.
If the banks screw up, like in 2008 we the public then have to give them our hard earned tax dollars to help them out and stop them from going bankrupt.
Bitcoin, on the other hand, gives people more trust and freedom in their transactions.
Bitcoin doesn’t require the trust of a centralised authority or human input.
Bitcoin is a global currency that can be sent and received anywhere in the world in a matter of a few seconds.
Unlike the service that banks currently provide.
Further, you can keep your coins in a computer desktop wallet, mobile wallet or on coin exchange servers and not get charged by anyone.
Best of all no one can print more Bitcoins if things go bad.
This means the value of your Bitcoin won’t suddenly be reduced by a Government printing more currency.
It’s no wonder people are excited!
Everyday acceptance is increasing with more and more vendors accepting cryptocurrency as payment options.
Of course, there are disadvantages to Bitcoin that banks don’t have.
For one thing, Bitcoin isn’t legal in all countries, you can’t reverse a transaction in case of fraud, and it’s vulnerable to hackers.
However, with all the benefits that Bitcoin has it is no wonder bankers are worried.
As a result bankers are trying to halt the growth of the industry and funds into Crypto by banning purchases made by bank card.
Banks like Lloyds Banking Group have already stopped its customers from buying digital coins with their credit cards in a move which follows J.P Morgan Chase.
But despite all this we think Cryptocurrency whilst still a fledgling industry the advantages outweigh its disadvantages.
Bitcoin sends transactions easily, it’s free from the sort of manipulation that’s severing trust between customers and their banks, and its price is gradually stabilising.
Will Cryptocurrency Last?
There are some alarm bells ringing around cryptocurrency.
For sure, money laundering is a worry, while the fact that hacker’s can ransack your virtual wallet this is no doubt scary!
However, governmental regulation can solve most of these issues.
Securer investments are more appealing for cryptocurrency and for everybody as a long term investment.
For me the big question is will we have a world where there continues to be hundreds or thousands of different coins.
Will Amazon, Facebook, Apple and every other company bring out their own coins?
Will governments bring out their own digital currencies coins and we live in a world where many different coins coexist together?
Or will governments ban all cryptocurrencies and bring out their own national cryptocurrency which is faster, safer more transparent and trackable then current fiat currency.
One thing is for certain is that cryptocurrency technology (also known as blockchain for explanation on the difference between blockchain and cryptocurrency check my article here) is a better, faster, trustworthy and more efficient way of using money and we believe it is here to stay.
However, like with stocks, if you do decide to invest in cryptocurrency, you just need to be prepared for the worst and hope for the best.
Only invest what you can afford to lose.
But rest assured we are living in an exciting time!
A time which I am sure in ten years time we will look back on and think how crazy it was that we use to get charged by banks to hold our money or that we had to wait a few days to a week to send our money across the world!
Me personally: I am believer and think this is a technology for the future and we will live in a world where many different coins exist.
Now, if you want to start investing in Cryptocurrnecy today we recommend buying your Cryptocurrency on Binance.