Cryptocurrency is often included in the list of investments recommended for storing funds. However, economists warn that this approach is incorrect, and considering, for example, bitcoins as a currency is a mistake. How does it differ from gold and traditional currency?
Over the past two and a half years, the price of gold has been rising rapidly, so many people choose it as a means to preserve their funds. Clients of well-known economic consultants include this precious metal in their investment strategy. But there are a few nuances.
Great Hedging
Experienced economist-practitioners have a special term – hedging. It means that an investor can simultaneously take several opposite investment positions. For example, investing money in euros, dollars, gold, diamonds, bitcoins, and so on. One can be sure that one of these positions will work better, and some will perform worse, and as a result, the balance will be preserved, and the funds will not be lost. And such hedging in gold, for example, is associated with incredible fluctuations risks. At the same time, if you put everything in bitcoin, then the opposite niche remains uncovered.
Cryptocurrency Challenge
The main feature of cryptocurrency is that it is actually not a currency, but an asset. And this should not be frightening. There are examples in world history when assets saved financiers from collapse. For example, in the 1980s in Latin America, aspirin tablets could be used as currency, and we all know examples of cigarette currency – even if today it is less politically correct than before. There will always be a niche for something like this for a short period of time.
But the main condition is that you will find someone foolish under any circumstances to buy them from you at a higher price. If you are confident in these investments, you can include them in your portfolio. The conditions under which people desperately need aspirin or tobacco are clear. Cryptocurrency is not that great.
Cryptocurrency Millionaires
However, in recent years, people have been able to make a lot of money through cryptocurrency investments. This was also the case with items such as cigarettes and aspirin. Anyone who stocked up on them earlier ensured stability for themselves for a while. At some point, the crisis will end, and then these things will practically cost nothing.
And one more question: won’t crypto investments become an alternative if the current system of unsecured paper currencies fails?
When it comes to the concept of what money is, state power is completely underestimated. From the moment cryptoassets become an alternative to national currencies, they are most likely to be banned. Gold has already been banned. It survived in niches, but it did not help people while it was banned. The state cannot allow the replacement of its own currency. This will also go hand in hand with periods of high inflation, which no one wants.
