Thoughts about Cryptocurrencies [i]

Invest?

Introduction

There is a topic I want to discuss, and although it has been discussed very frequently, many people still don’t know what to make of it: Cryptocurrency.

Is it to be trusted? Does it have any value? Is it fraud? Will it rise? Will it fall? Why?

I constantly hear questions about this topic, so let’s get into it.

I will cover a few points without going too deep into the matter. I’m curious whether people are interested in the topic, so let me know.

Last but not least, I will give you an insight into the matter you otherwise won’t find.

Basics

I will try to explain it so everyone can understand. Hence, forgive me if I do not explain the technology behind it in detail. It certainly is far from being trivial.

Simply put, Crypto is more or less a technology that gives you access to a virtual token or coin. The most prominent one is “Bitcoin,” but there are many others. Moreover, given the technology and its data structure, there can only be a certain number of Coins available. Let’s call that number X.

The system starts with one coin, and it is designed in a way that people need to “mine” for further coins with technology. That’s why, in some places, there are whole data center farms working on “coin mining.” Mining is possible until the amount/number X has been reached. Then, the final number of coins becomes a commodity whose scarcity depends upon demand.

Ponzi Scheme? Value of a coin?

Many people accuse Crypto of being a Ponzi Scheme.

Is it a Ponzi Scheme? From my point of view, no.

With a Ponzi Scheme, you are buying assets that either do not exist or exist but have no value whatsoever.

One might say this applies to Crypto, but it doesn’t.

To understand this, we should first understand the value of a Crypto Coin (Unit).

It has no physical manifestation; therefore, its tangible value is 0. Everyone knows these two facts. So, it is not fraud and no Ponzi. But why does one pay tens of thousands of Dollars for one non-existent coin with no value? Because it is speculation based on trust. You trust that you will be able to buy XYZ with it within a reasonable time.

Crypto might not have worked if it had not been for individuals and organizations that needed anonymity in their financial transactions. For example, organized crime and illegal drug purchasers. Crypto was a mechanism to maintain the desired anonymity in “money” transfers, and for a long time, these entities had been the major crypto users. This was only the tip of the iceberg; as comfort and popularity grew, the use of and investment in crypto spread like wildfire. These early adopters were the testing ground for proving the concept of trust in transactions with crypto.

Hence, trust is given, and value is established with the successful conclusion of the transaction within the next few months/years.

In fact, it is very similar to paper currency. The paper has no/little value. The trust (indeed, fear) gives it the value.

In other words, if certain events occur, the value could drop overnight to zero. Everyone who trades with Crypto should be aware of that fact. But I’m not saying not to trade crypto.

For now, it works, even though it is very unpredictable.

I’m not doing any investment consulting here; I’m not qualified to do that. Don’t act based on what you read here.

I can only say that I personally would never buy crypto for the abovementioned reasons.

Insight

To underline this, I want to share some information with you that I received while discussing Crypto with an Economics Professor who is also advising the government in the capital of a major European country. Hence, he has very deep insights into the decision-making process.

Basically, he confirmed most of the things I wrote above.

Furthermore, he also said that the existence of such a vehicle is entirely abnormal. Especially because an entire financial system that is almost not regulated and bypasses all laws and taxes of a country normally should not be able to exist. Currently, it is being allowed to exist because everyone is profiting from its existence. All kinds of black schemes can be done, even by special services, without the need for special cover operations to cover the tracks, which becomes extremely difficult in the digital world. Crypto is a perfect bypass.

To quote him directly: “The State would never ever allow you to have your private Apache Attack Chopper in your backyard. The same is true with Crypto. There will come a time where it will be either entirely regulated and incorporated into state policy (virtual currency) or forbidden entirely”.

I agree. Crypto will be either banned or transformed into a completely regulated digital currency. Sometime between tomorrow and the next ten years. It won’t stay in the grey sphere forever. And when it happens, then it will lose its entire speculative value. Its value will be assigned to existing hard currencies.

So, for now, it is entirely fine to trade with it. And it might stay this way for a while. The value could even skyrocket when the Western financial system starts to break down quickly. (I would expect interventions in this case).

Suggestion

Since I expect the breakdown of the Western financial system (note: NOT the end of the world… only a transition to a new trade system) within the next few years, I would definitely try to keep the value of my savings in something that could be changed back into a potential new currency after the crash with an equal value. BTW: I will write about a potential crash soon in the free section.

Again, I am not giving investment advice. That’s not the purpose of this blog, and any decisions you make are at your own risk.

I personally bought physical gold with half of my savings two years ago. And I’m considering investing now the other half of my savings into gold as well. To have it in my physical possession.

Others might want to save value in Crypto, which could work for a time, but one should find the right time to exit so as not to lose everything. I personally am not into gambling, so I won’t do that.

Of course, it makes sense to have some 15% of one’s savings in silver coins to be able to buy groceries if needed.

Conclusion

We are currently in the era of Crypto. And it is truly a very interesting concept and technology. A technology (blockchain) that is being used for other purposes as well.

According to my article, the end of unregulated or lightly regulated cryptocurrencies will occur within the next few years. Nevertheless, my discussion with the aforementioned professor took place before the start of the Russian SMO.

There is also the possibility that plans could look different today. Especially since there will not be one block led by the West worldwide. Instead, multipolarity is rising. I would not exclude that Crypto could survive longer in its current state for the sole reason of shifting values between the multipolar blocks without governmental control as it is today.

These are only several thoughts about the value and the future of crypto. Please feel free to discuss it in the comment section. What is your opinion about crypto?

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[i] Edited by Piquet (EditPiquet@gmail.com)