Crypto traders are a dime a dozen these days, throwing big chunks of money into various shiny blockchain projects with the hopes of making a pile of money. Sometimes this doesn’t work out so well, as we’ve seen with BitConnect’s epic crash and the lives it destroyed. However, even with legitimate projects we’re seeing investors getting in for quick profit and sometimes even losing their lives during a market dip. This represents a perfect opportunity to remind speculators that cryptocurrency isn’t just a moneymaking scheme, and outline exactly why treating it as such is a recipe for disaster.
1: You incur great risk
It should go without saying, but many crypto investors forget the enormous amount of risk they’ve incurred. Some aspects are more obvious than others, such as investing in an emerging and experimental technology. However, others are easily overlooked, such as the risk of theft without legal recourse, loss of funds through technical glitches or incompetence, or exchanges becoming insolvent, hacked, shut down, or pressured (by authorities or bad actors) into releasing sensitive customer data. Perhaps the biggest risk of all is the legal grey area which could see some perfectly harmless crypto fans retroactively become criminals. The rewards of investing in cryptocurrency are only high because the risk of getting #rekt through a plethora of different avenues is equally high.
2: The opportunity cost is real
Thanks to a global epidemic of economic illiteracy, one of the most often ignored downsides to any proposition (investment, government project, etc.) is its opportunity cost, or what else you could have/be doing if you chose to do something else with your time and funds. Is there a more stable or promising startup you could have invested in? Did a lack of funds on hand cause you to miss out on greater opportunities, such as fixing your house/car to avoid greater expenses down the road, moving to a new city to start a better job and life, or building your business so you would have more disposable income to spend on crypto later anyway?
The time opportunity costs are even more significant than those of financial investment. With all the time you’ve spent studying cryptocurrency, keeping up with all the daily price movements and technical analysis, watching for major development updates or warning signs of a scam, and ensuring that your coins are secure (and studying how to do so), you could have been learning another marketable skill that would increase your prosperity. More importantly, in your crypto obsession you may have let go of your physical fitness (potentially causing expensive health problems down the line), neglected your personal relationships (which could result in an expensive divorce), or simply missed out on many great experiences to travel the world, partake in an exciting and fulfilling hobby, or otherwise form experiences or accomplishments of a lifetime. Your time is a scarce resource, never coming back once spent. Using it to go deeper down the crypto rabbit hole may be the very best use of it there is. It also may not be, depending on your deepest desires.
3: You’re betting on hard work and innovation, not ensuring it
This one gets a little tricky, since many investors are actively involved in their projects, rather than just sitting on the sidelines. This isn’t directed at them (us) at all, but rather those who throw money into a coin, walk away, and expect to become rich. Cryptocurrency’s valuation is based on its innovation and speculation on how its tech will change the world someday. In some cases, investing in it helps spur development, for example where increasing token prices allows more developers to be hired or more practical integrations to be formed. However, for the most part, buying coins and expecting them to go up is simply betting on the future results of the hard work of developers today. It’s passively counting on others to ensure your own financial success, basically telling a development team “Hey guys, go make me some money!” Generally speaking, the more lopsided the investment to development ratio is in favor of the former, the more risk the investment carries of being a disappointment.
4: Most projects will crash and burn, probably yours too
One of the hardest pills to swallow is the high probability that most of these coins will be worthless in a few years. No, I’m not being fatalistic here, I’m being realistic based on the emerging nature of the field. This is revolutionary technology whose time has yet to come, and so much money has been thrown at just about anything with a blockchain (or tangle, whatever) that moves. The fact that, so far, this has been a sound investment strategy speaks to just how big cryptocurrency is going to be, sure, but also to how unfocused the market is. When it focuses on the truly legitimate projects that have a place in the long-term ecosystem, those few projects will skyrocket, while the rest will fall just as spectacularly.
Now I know what you’re thinking: “Well I won’t be caught holding a bad bag, if something is looking bad I’ll just switch to a better coin.” Sure, but you can’t predict future outcomes perfectly. If you trade skittishly, always chasing the next pump, you’ll be constantly buying in at a premium, losing a little bit with every trade. If you hold long-term or buy cheap coins hoping they go up, that’s risky (see point #1), with a great possibility of being wrong. You know how when everyone dumps a plunging project, someone has to be the one buying (or holding) as most investors jump ship? That someone is you and people like you. Many people reading this article will be stuck with significant investments in doomed projects.
5: When everything becomes crypto, nothing will become crypto
Finally, this is the big risk that few have even thought of: what happens when every single major company and financial institution on the planet leverages some sort of blockchain technology? I’ll tell you what happens: “crypto” will cease to exist. If everything’s crypto nothing’s crypto. The competitive market advantage of being a revolutionary technology will be over once said technology becomes universal, and cryptocurrencies will now have to compete on their merits as payment systems, smart contract platforms, etc. versus the best competition the global economy has to offer. Faced with this situation, nearly all present projects will have no advantage left, and will fail.
Now I know what you’re thinking: decentralization and censorship resistance will always be invaluable, no matter what corporations adopt. Yes, however, don’t bet on them being unable to still maintain these aspects. It may be hard to conceptualize, but it’s entirely possible that a payment giant like PayPal will develop a cryptocurrency that works better than anything currently in existence, leveraging its considerable funding and partnerships to make it a world currency in record time. This can even be done in a decentralized manner, with the company holding a significant (though not overwhelming) stake in the currency and infrastructure, as well as profiting from the benefits of a peer-to-peer electronic cash system the same as everyone else. Old-school cryptos would have no competitive advantage save for grumblings about how they were started by true cypherpunks and not companies.
That’s why it’s important to remember why we invest in cryptocurrency to begin with: the potential of the technology. Have your money follow its usefulness in providing value to the human race, including investing in companies that leverage this tech or participate in its infrastructure, and you should do just great. Treat it like a way to make a fast buck through successful gambling, and you very well might lose everything.