Investing in Bitcoin and Blockchains is like gambling in a casino

JALUUM HERBERTS

From early last year I have had many people seek my opinion on whether to invest or not to invest in bit coin and other crypto currencies as an investment portfolio.

Personally, I have been watching keenly and following the trends from the sideline as bit coin in particular unpredictably rises and drops in value by the years.

The first time I paid keen interest in the crypto currency was in 2013. An investment of about £ 1000 ( Shs 4m) then would be worth £ 175,000 now ( Shs 700m).

Holly sh*t you must be saying to yourself.

I know, that’s how everyone feels me inclusive. Be informed though that over $150 Billion worth of crypto currency disappeared from the crypto currency market within the last 24 hours between February 5-6, 2018!!!

Why then don’t I invest in them right you must be wondering!? The problem with block chains for me (and for you too) is they are not your orthodox sort of investment.

I mean, crypto currencies are nothing useful neither do they produce money and just like gold in the past their crazy prices are driven by people’s belief that they can sell them at a much higher price to someone else in the future.

Those of you who were around when gold was being touted as the new medium of exchange know what am saying. It’s no different only that now its crypto currencies made out of some computer program called block chain rather than gold.

This makes it a total speculation a thing you should never do with investment. It’s like playing some physiological game against other humans with money at the back of your mind.

Investment is the purchase of assets that can be used to produce products or services with cash flows for example a business, real estate which you can rent out and can increase in real value over time the longer you hold on to it.

An investment is something that makes financial sense owning even if one didn’t have plans of selling it of which is not the case with crypto currencies.

If you don’t sell them then they are as worthless as worthless can be. Dealing in crypto currencies is akin to gambling.

So what is this block chain!? Block chain is actually open source technology/software and crypto currencies are one of the many ways that this software can be pit to use.

Blockchain is some computer protocol that allows two people or computers to share information amongst each other even in the absence of trust and these transactions can be of a monetary nature or they could just be files.

The reason the prices of these crypto currencies are skyrocketing can be explained the human behaviour of greed, band wagon and the fear of missing out on a windfall.

What is happening with bit coin and other crypto currencies is a repeat of what happened in the past with gold, silver and tulips among other things.

All those were mooted to be the currencies or mode of exchange for the future. Many people stockpiled gold and even at some point baseball cards so they could be able to sell them expensively in the future when the prices rose.

This created a speculative environment that saw the price of gold soar so high before it finally crushed and we moved on from idea of using gold as the medium of transaction.

We are just going through the same cycles with bit coin and I am so sure it will also crush at some point.

So as you take the gamble have that at the back of your mind and trade with care like you were playing a game of porker in the casino because bit coin still has a long way to go before its becomes actual money allowed as a medium of transactions world over.

For this to happen bit coin will have to first achieve stability as failure to do so will make it practically impossible to set prices. We would see price fluctuations daily.

Imagine buying sugar at 5k today, 30k the next day, 800k the next day before the price falls to 1k on the fourth day.

Not even the consumers would wish for that sort of price uncertainty. Then it will have to gain wide global acceptance and appeal, a characteristic of any good and legal currency and trust me bit coin still has  long way to go to achieve this that’s  if and when it finally does.

It will also have to be easy to trade with between people with no friction and an ability to be stored safely.

With many electronic wallets like Mt Gox in Japan being hacked safe storage of your digital money is still a night mare far from being dealt with.

The only thing that would make bit coin and other crypto currencies valuable is when you exchange it with real money like the US dollar, which you would intern change into Ugandan shillings for you to be able to actually purchase something in real life.

Plus, not everything that comes onto the scene and starts speculatively rising in value makes for a good investment.

No government is going to let every Tom, Dick and Harry with the ability to write a block chain computer code come up with their own currencies for transactions, evading taxes.

Crypto currencies can only work if they’re backed by the government where the currency can be fully monitored to avoid money laundering and evading taxes.

So should you invest in them!? It’s like asking me if you should go look for wealth in a casino [haha].

 

Jaluum Herberts Luwizza is Business Consultant, Writer and Public Speaker with YOUNG TREPS a business management and consulting firm that helps people start, run and grow profitable and sustainable businesses.