Investment Advice – Crypto Currencies: A Useful Investment Opportunity?

Investment Advice – Crypto Currencies: A Useful Investment Opportunity?

Multiple recessions, currency fluctuations in the stock markets, and even pandemics have radically transformed the state of the world’s financial system over the past twenty years. The increasing rate of global calamities, many of which owe their existence to climate change, has meant that financial institutions and governments have had to impose a considerable amount of regulations onto the trading landscape. Together, this has created a situation wherein the markets are both regulated and overly volatile.

One solution that engineers have created to counter this is a totally new form of currency — the crypto currencies.

In this article, the latest of our series on investment advice, we will go over the ins and outs of this new form of currency. Our goal will be to you an overview and an idea of whether or not they are a viable investment opportunity.

What Are Crypto Currencies?

If you are  unfamiliar with the concept, the crypto currency (or crypto for short) is a form of non gold-standard currency pioneered by Bitcoin in 2009. They are created, regulated and owned by the individual or collection of individuals who created the coin in the first place — totally independent of government or secondary organizations.

Unlike a traditional currency, cryptos are not backed up by gold in the same way as most currencies traditionally were. Instead, crypto currencies are fiat-based currencies — meaning that they are worth as much as people believe them to be worth. This is similar to how most currencies currently work. For example, the British pound sterling abandoned the Gold Standard in 1931, while the US dollar did the same in 1933.

The chief difference between crypto currencies and traditional currencies is their backing. Traditional currencies are backed by national banks — for example, the Bank of Scotland is the national bank of Scotland and prints the Scottish currency. However, crypto currencies are not backed by national banks or any nation’s government. As we mentioned, they are created, regulated and owned solely by the individual.

Because these crypto currencies are not backed by a national bank or nation state, they are able to weather financial disturbances that would sink other currencies. This makes them tempting opportunities for investors. However, the conservative investor would be wise to refrain from investing in crypto currencies for the time being.

Why Shouldn’t You Invest in Crypto Currencies?

It’s true that crypto currencies remain stable while traditional currencies flounder — and that this is due to their independence from the traditional financial system. However, that same financial independence makes them extremely volatile.

Volatility

Unlike traditional currencies, which are backed up by national banks and the gross domestic product of their country of origin, crypto currencies are only backed up by the faith of their users. This means that they are extremely susceptible to fluctuations in value, fluctuations which can appear quickly and without much warning.

For example, when Elon Musk appeared on Saturday Night Live in 2020 and attempted to plug the crypto currency Dogecoin, the value of the coin dropped from record highs of $0.72 to $0.48 within minutes. Furthermore, early 2022 saw massive fluctuations in the valuation in BitCoin, leading many analysts predicting that the coin itself would soon spiral.

However, this volatility is only the first reason why a wise investor should be wary of investing in crypto currencies. The next big risk that you should be weary of is the security risk that is associated with crypto currencies.

Security

Crypto currencies can’t be stored in a bank or savings account, and they are only recognised by a small number of financial services.

To store a crypto currency, you need a Wallet. This is an app that stores your crypto currency in much the same way as a traditional wallet or mobile banking app does. Many of these wallets are built according to the Open Source philosophy, meaning that the code behind them is available to all to view or edit as they wish. Generally, this makes them a relatively safe way of storing currency as any issues are discovered and fixed quickly.

However, while the Open Source philosophy means that malicious hackers have a more difficult time forcing their way into crypto wallets, they are not full-proof, and there are a wide range of tools available for hackers wishing to hack into wallets.

Vanishment

The final risk that one should be wary of when considering investing in crypto currency is the risk of vanishment — the risk that the crypto currency will disappear completely. There are many reasons why a cryptocurrency would disappear. For example, a currency may lack a strong, dedicated and flexible team to handle the project, leading to breakdown. Alternatively, there have been several examples where crypto currencies have been fronts for scamming operations, with the currency disappearing and investors losing all their money.

This has already happened many times in the past few years. According to FinanceMagnates.com, this number of ‘dead’ crypto currencies currently stood at around 800 in 2018 — with that number being around 2,047 in 2021 according to e-cryptonews.

Moving Forward: Investment Advice With Giliker Flynn

It’s undeniable that there are considerable risks when it comes to crypto currency. Because of this, we do not currently recommend it as a viable option for first time investors, and we are extremely critical of any investment advice that posits them as a valid opportunity at this time. But despite being over ten years old, the technology is still in its relative infancy, and there may be a time in the future where crypto currency becomes a viable investment opportunity for investors.

In the meantime, there are many other valid forms of investment ready for the eager investor. To help you make the most of your investment opportunities, Gilliker Flynn is here to help you.

We are a group of independent wealth planners, offering independent financial advice in Stoke On Trent. Our highly trained and experienced financial advisers help our customers navigate their existing opportunities, as well as aid them in identifying potential new ones.

We are authorised and regulated by the Financial Conduct Authority, and are utterly dedicated to providing our customers with first-class service. We provide our customers with a bespoke, individual service, offering first-class investment advice in the hope that it helps them to make the most of their wealth.

Contact Giliker Flynn for more information on how we can help you.