Should I own Cryptocurrency as part of my diverse portfolio?

Should you invest in cryptocurrency?

As you should know by now, it is not wise to invest in a single company or stock. You know the age-old adage, don’t put all your eggs in one basket, don’t you? And that is exactly why you shouldn’t put all of your money in one company. So instead of investing all of your money on that one company that did great last year, it would be prudent to invest in a wide variety of stocks. From upstart companies to mining powerhouses, from financial institutions to solid gold. People invest in all sorts of companies and funds. But over the last couple of years, there is one question that just kept on getting bigger and bigger: “Should I invest in cryptocurrency?!”

What is Cryptocurrency

What a great question! And not one to be easily answered, that is for sure! But we will give it our best shot. Hopefully, you will have an idea of what a cryptocurrency is after this…

First of all, it is not a physical thing. You can’t go to a bank or to a company and withdraw physical coins or banknotes of a cryptocurrency. The currency, whichever one it is, only exists in the digital realm. It can, however, be traded for a physical monetary currency like the American Dollar, for instance. So investing in cryptocurrency is not the same as buying shares in Sasol or Pepkor. It is more like buying a monetary currency.

Cryptocurrency has been around since 2009 when Satoshi Nakamoto invented Bitcoin as a digital currency. To create Bitcoin, Satoshi developed a decentralized peer-to-peer network system where users on the network authenticate Bitcoin transactions. So in short, he created a decentralized banking system. In this system, “miners” provide the computing power for transactions to be approved in the digital world. So if you were to buy shoes with your Bitcoin, the transaction would go through a “miner’s” computer, after which the fact that you just spent a Bitcoin will be put in the Bitcoin database. Every time someone does a Bitcoin transaction, that data gets added to the chain of previous transactions that occurred. Thus they call this type of transaction a blockchain transaction. Since the founding of Bitcoin, many more companies started using blockchain technology.

But if you want to know more about the origin of Bitcoin and subsequently other cryptocurrencies, click here.

Is Digital Money Worth Anything?

Cryptocurrency is digital money
Bitcoin Wallet on Smartphone

There are over a thousand different cryptocurrencies out there at the moment. To just select one of these digital currencies and buy into it seems like a bad idea. But there are those cryptocurrencies that are definitely worth something. Let’s take Bitcoin, for instance. The father of crypto, if you will. In December of 2017, one Bitcoin sold for $19,783.06 (USD), approximately 1800% more than what it sold for at the beginning of 2017. But the growth spurt was short-lived, as the price for Bitcoin plummeted severely in 2018. As of today, you can buy a Bitcoin for just over $4000, which is still quite pricey if you compare it to the stock price of Apple, which is currently trading for $188.86. Ethereum, another cryptocurrency, is currently selling for roughly $138 per unit, just to put Bitcoin in perspective.

Can You Buy Anything With Crypto?

In October 2018 Rakuten, the Japanese equivalent of Amazon, announced that they have plans to start accepting Bitcoin as payment. Yesterday (26 March 2019), Rakuten released an official statement to say that the group received a licence to operate a cryptocurrency exchange from the Japanese Financial Service Agency (FSA). In reality this means that one method of payment for buying goods from the Rakuten website will be Bitcoin. So just like you can pay with PayPal, MasterCard or by Debit Order for your online purchase, you will be able to pay in Bitcoin from April this year.

Even though this is not the norm worldwide, this method of payment may soon be acceptable at more online retailers than Rakuten. One forward-thinking South African company called TecLeo Data Recovery Lab already accepts payment in Bitcoin, Ethereum, Ripple and Neo (all cryptocurrencies). So in short, yes, you can buy physical objects or services with cryptocurrency.

Trading vs. Investing

Trading or investing in cryptocurrency
Trading Cryptocurrency

A lot of people that are new to the investment/trading world often confuse the two concepts. So very briefly, here is the difference between trading and investing:

  • Trading is when you actively buy stock or currency and try to sell it at a higher price then what you bought it for. It is a short term process and is usually quite risky. As a rule, people that are new to stock markets shouldn’t start out by trading.
  • Investing is when you buy stock or currency and hold on to that stock for a long period of time. The idea is for your money to mature or grow over time, as the stock that you invested in grows. Investing is generally a long term process and is not an easy way out to make a quick buck.

In this blog post we talk about investing in cryptocurrency, not about trading with it. To trade in any currency or exchange, one needs to know the market quite well and be able to forecast how the market will shift over the short term. Whereas investing is a slow and steady business and you don’t need to know everything there is to know about a market before you invest in something. With this we are not saying that you should just blindly invest in a company! But you can invest in a big company like Capitec or Anglo Platinum and be fairly sure that your money will grow, albeit slowly.

So, should you invest in cryptocurrency?

The first rule about any investment that you make is this: Never invest more than you are willing to throw to the pigs. In other words, don’t spend money on an investment if you are not willing to lose all of the money that you spent. Any stockbroker worth his salt will tell you the same thing. Don’t go make a loan at the bank to buy shares on the stock market. That is folly.

Reasons to Consider Investing in Crypto – Specifically Bitcoin

Bitcoin and Ethereum

But investing in cryptocurrency might not be such a bad idea. With major online retailers starting to accept crypto as payment, some of the top currencies may well be worth buying into. Think about it, if you buy crypto and you get tired of it, you can just do your shopping with what you have in your wallet.

On a more serious note though, Mike Novogratz, CEO and founder of Galaxy Digital (a merchant bank that is dedicated strictly to digital currencies and blockchain technology) compares Bitcoin to gold. He claims that buying Bitcoin is just as solid an investment as buying physical gold. At the moment, Bitcoin is just a tad more expensive than its physical counterpart. Spencer Bogart from Blockchain Capital, a venture capital company that invests in startup blockchain companies is also of the opinion that Bitcoin is digital gold. Spencer also advises that, should you want to invest in cryptocurrency, Ethereum is also a solid option.

Going back to Japan, the country’s FSA not only granted Rakuten a licence to operate a digital currency exchange. They also granted a
licence to the DeCurrent exchange to provide spot trading for four cryptocurrencies. Some of the noteworthy shareholders in DeCurrent are MUFG Bank (the largest bank in Japan) and other large financial institutions like Nomura Holdings and Dai-ichi Life Insurance company. If large companies such as this invest in cryptocurrency, it probably means that crypto is here to stay. In America, some of the giant public pension funds started to invest in cryptocurrency. Universities are also coming on board. So with financial institutions, pension funds and universities investing in crypto, maybe it is a viable investment option after all?

Reasons to be Skeptical About Investing in Crypto

Interestingly, Mike McGlone from Bloomberg Intelligence agrees with the idea that Bitcoin could be digital gold someday, even though he is of the opinion that cryptocurrency as a whole is still far from reaching rock bottom. There are a lot of big heads in the financial world that agrees with McGlone. After the explosive growth that cryptocurrency showed over 2016 and 2017, the entire market fell by enormous margins. Some finance experts claim that the market for cryptocurrency will never recover and die out eventually.

The Verdict?

You have to decide for yourself. Think about how the world is changing. With great matters such as nationalism vs. globalism on everyone’s lips, how long will it be before non-sovereign currencies, like Bitcoin and Ethereum become global currencies? Those questions are open to speculation and we certainly don’t know the answers! But what we do know is that, even though cryptocurrency took a major knock in 2018, it is still around and big companies are investing in it. Remember, public pension funds don’t just invest in anything. They can’t play around with hundreds of millions of Dollars’ worth of pensions. So if those companies are buying cryptocurrencies… It must mean something, right?

So go ahead and do some of your own research. If you are really interested in investing in crypto, go and read up on it. Look at charts, read blogs, watch YouTube videos. There is a lot of information out there and a lot of people will tell you different things. In the end, you are responsible for your own financial future.

PS. If you have a little bit of money that you are willing to sacrifice, why not invest it in a good cryptocurrency and write it off. Who knows, 20 years from now you might be pleasantly surprised at how that money grew. But on the other hand, if the skeptics are right, you might not ever see that money again. However, if you wrote it off, it won’t be so bad to lose it, now will it? The choice is yours!