Is Cryptocurrency a Bad Investment?

Amid a raging pandemic where stock markets have declined nearly 30% and businesses have suffered the worst kind of downswing post the 2008 recession, one investment has scaled newer heights of profitability; the cryptocurrency.

Among a motley of factors, the major reason of crypto’s upswing seems to spring from its idea of scarcity. For example, Bitcoin’s mining is limited to 21 million coins or tokens which spurred the value of these tokens nearly 100% on a year-to-date basis as of today. Another reason of crypto’s meteoric rise in value owes to the fact that the COVID-19 pandemic has rendered physical payments somewhat out of health safety restrictions and cryptocurrencies, being the new-fangled mode of payment, is all set to replace it. But, should you consider investing in crypto despite the superficial advantages that it seems to churn out nowadays? The one-word answer to this is NO. cryptocurrency can be a bad investment due to elaborate scams and frauds that have become part and parcel of the crypto market.

Firstly, the whole aura of scarcity of crypto coins/tokens is, quite literally, cryptic. While gold is actually limited to what can be mined from sources of gold, cryptocurrency is claimed to be limited by programming prowess of computers. The thriving community of programmers all around the globe is well above the demand and supply chain of cryptocurrency and very likely to increase its mining limitations with each passing day. So to say that crypto is limited is more tall talk than actual threat. The “shilling scam” is the instigator in this case where the value of a crypto coin/token is artificially hyped by dubious marketing strategies such as claiming a scarcity of an object in the near future and pushing investors to commit their capital to it before the object disappears from the shelf.

Secondly, a scam somewhat similar to shilling, known in industry as pump-and-dump, is rife within the crypto investment circles. Due to lax regulatory mechanisms on cryptocurrency, pump-and-dump is not illegal per se, but it isn’t ethical either. It starts from setting up a investors communication forum on popular messaging apps such as Telegram, WhatsApp, Instagram and Facebook Messenger. The scammer buys a low cap crypto and then markets it as the next big thing in his/her respective investor fora. The scammer baits them by deploying a centuries-old technique; greed of overnight riches. Once these investors are hooked, the scammer tells them to buy the coin en masse at a specific time. This would inflate the value of the coin. The scammer then dumps the coins, making a boatload of profit, while others follow in frenzy. But by that time, the selling rally shrinks the cryptocurrency’s value to pennies.

Other factors that make investing in cryptocurrency a bad decision include its low utility and acceptability, low barrier to entry, vague means of value appropriation, sparse regulation, complex taxing situations and the historical record of next-big-thing bubbles bursting into oblivion. The eventuality of investing in cryptocurrency, thus, is more dependent on your gall than your gut.

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