Recently, cryptocurrency or particularly Bitcoin (BTC) is making the headlines again after breaching USD10,000 per BTC.
And the age-old question keeps coming back. Is Cryptocurrency
considered an investment?
First things first, let’s get to understand bitcoin,
cryptocurrency and blockchain first before forming a personal opinion on
whether you should, or should you not invest in them.
What is Cryptocurrency & Blockchain?
Cryptocurrency is a product or an example of blockchain
technology. Blockchain is a technological solution that decentralizes
information and data-keeping via a ledger method. Sounds complicated? In very
layman terms, rather than have a treasurer who holds on to the accounts, records
and validates the transactions of a society, the job or responsibility is now
held by everyone in a particular society, where at any time one person records
a transaction, any other person serves to validate it. It becomes an automated
system where each and everyone serves as a witness to every transaction
happening rather than putting the trust on one treasurer alone.
Will blockchain provide us with a new turning edge when it comes
to handling data? Yes. The potential is promising as the logic and rationale of
decentralizing and validation of data by a peer to peer system pretty much
makes sense as an improvement versus the current system.
So, does that mean Bitcoin is something you should invest
Bitcoin & The Ideology
Bitcoin is a cryptocurrency that currently works using blockchain
technology as an alternative method of payment. Rather than using an existing
currency, it was to be newly formed and coined. The key ideology of Bitcoin was
to address an opinion by founder Satoshi Nakamoto. The opinion claims that for
current fiat currencies to work, the mass public must believe and trust it.
In very simple words, you, me and everyone else, trust that a
piece of paper minted with numbers from $1, $2, $50 or even $,1000 with
approval from Central Banks can be used to exchange something else of similar
But Nakamoto claims that currency value can be manipulated and
full of breaches. When banks raise the debt headroom and print more money, the
value or buying power of a currency shrinks. And that is where a very normal
situation occurs in a growing economic environment, which is called
In Nakamoto’s opinion, there is a need for a finite amount of all
currencies, to ensure that the value of is not tampered with or diluted down by
making more of it.
So, in very layman terms, Bitcoin is more of like a digital
version of gold, rather than a currency. History has proved that it is quite
impossible to peg the value of a currency to gold.
The Weaknesses of Bitcoin & Cryptocurrencies
1. The Supply & Demand Balance
Valuation of almost everything under the sun is governed by the
law of Supply & Demand. From currencies, commodity prices, art collections,
properties, and even limited-edition clothes and shoes, all are governed by the
laws of supply and demand.
So what will happen, should the world relies on a finite amount of
something like the main key metric of valuing things? We have all gone past the
age of carrying actual gold coins, gold bars, to having minted currencies tying
their face value to the actual value of gold. With the rate the global
population is growing, there won’t be enough gold nor bitcoins to aid
transactions and payment all around the world.
To avoid facing such a catastrophe, our ancestors have decided
that there is a need to let currencies float. But for other things that can’t
be created out of thin air, like the land areas of countries like Singapore and
Hong Kong, property prices are always sky high, and it will be almost
impossible to own a piece of freehold land. Putting a finite amount of asset
into the hands of whoever was lucky enough to be on the early receiving end,
just will never make sense in the long run.
2. Not A Value Generating Asset
Cryptocurrency aficionados often boast about investing in the next
big thing. The true meaning of investing is to allocate your money into an
asset that is creating value. And as more value is created, the asset becomes
more valuable, hence providing an investment return.
Bitcoin and other cryptocurrencies sadly, fail to pass this basic
It does not create value like companies manufacturing smartphones
or manufactures products for the consumption of the public while earning
profits along the way. It does not even hold a tangible presence, where if you
were to forget your crypto wallet password, the value just gets locked, forever
unretrievable. And that could potentially push cryptocurrency prices higher due
to a sudden scarcity created.
3. The Over-hype of The Prospects of Blockchain & The Bias of
No doubt blockchain is considered a major breakthrough in terms of
ideology on how data should be kept safe and in order, there is an overhype
factor about it, and the bias that if blockchain were to play a major role in
our future, cryptocurrencies will eventually replace fiat currencies.
Again, Bitcoin is a product manifested by the idea of blockchain.
Since then we have seen thousands of other cryptocurrencies springing to life
just by using the same concepts of blockchain with some modifications.
Cryptocurrencies depend on a blockchain, but blockchain does not
depend on cryptocurrencies. And we have seen plenty of tech companies or
regulatory bodies around the world coming up with ways to implement blockchain
to improve the current systems, rather than replacing fiat currency with
cryptocurrencies. Maybe we might even see current fiat currencies being handled
using blockchain since we are already in a digital and cashless society.
To put things into perspective, the first Bitcoin network was
created on 3rd January 2009. 11 years have passed without a hint that
cryptocurrencies have the potential nor the advantage to take over the
During the past 11 years, a lot of things have happened. The first
iPad came out in April 2010, and there are already 7 generations of it
(excluding other variations like iPad Pro and iPad mini).
The last chapter of the Harry Potter film series – Harry Potter
& the Deathly Hallows Part 2, hit the cinemas in Jul 2011. It used to be
the third highest-grossing film of all time. As of today, it is in 13th place.
In 2010, Netflix, Inc. has just started streaming services
on top of its main business which is DVD rentals in just the United States of
America and Canada. As of today, they are already in film production, with
coverages in major parts of the world. The share price has gone up from USD 7
per share to USD 380 as of the time of writing.
The past decade was a time frame where we saw great ideas,
solutions shaping the present we have today. It is undeniable that blockchain
still has much to offer and the prospects are there.
But it can be a very grave and dire gamble should you choose to
allocate a big amount of your wealth on the hope that cryptocurrency will
benefit along with a major rollout and possible implementation of blockchain
into our lives.
Ong Joo Parn is the co-founder of MyKayaPlus.com, a website that aims to spread financial literacy to the mass public. It aims to prove that financial freedom is possible through hard work and determination, even though without a degree in finance and accounts. Being a Malaysian based in Singapore, has allowed him to see the beauty not only from both stock markets, but also any great potentials around the world.