Rise and Risk of Cryptos

Anissa Boulahya, Corporate Director at DD Metals DMCC, provides you insights on the rise and risk of cryptos.

Hello and welcome. I’m Anissa Boulahya from DD Metals DMCC. Today, I will provide you insights on ‘the Rise and Risk of Cryptos’. We know about the Rise of Crypto’s but has it really Fallen and out of favor with the tech savvy digital investors?

It all started when Nakamoto created Bitcoin back in 2008 and it’s value exploded without question. Back when it was first created, it had a value of little over a single cent. However, the value quickly grew and in late 2009 had already reached $27 for a single Bitcoin. Now, in 2021, a single Bitcoin has a value of over 35,000 USD, so as you can see, the value of this particular cryptocurrency has skyrocketed to monumental levels.

Nakamoto was able to create this system of cryptocurrencies, where a complete consensus is required from all parties, and if there is any disagreement between parties, the whole thing breaks down. The buzzword for the underlying technology is Blockchain.

Bitcoin and other cryptocurrencies demonstrate how there is no need for any kind of central authority to control spending and account balances as long as there is total consensus among all parties involved.

Some of the most popular and highly valued cryptocurrencies at this time include Bitcoin, Ethereum, Bitcoin Cash, Ripple, Litecoin, Dash, NEO, NEM, Monero, and many others.

Now that cryptocurrencies like Bitcoin have proven their value, their ability to operate in the real world, and have shown that they possess real purchasing power, more and more banks, investment firms, and trading organizations, as well as retailers, have begun to accept them as legit forms of currency and payment.

However, it did come at a cost. Lets explore a real life situation.

Towards the end of April 2021, the Central Bank of Turkey banned cryptocurrencies as a form of payment citing that there are disturbing money outflows to outside of Turkey via cryptocurrencies. The country has prohibited payment and electronic money institutions from mediating money transfers to cryptocurrency platforms.
Clearly, this move was prompted by something they knew that was already brewing that the world’s crypto market was unaware of. Albeit, not directly related, but in a span of a week in Turkey, Thodex (Ranked No 1) and Vebitcoin (Ranked No 4) halted operations due to deteriorating financial conditions. Although the exact reason is unclear, but we are given to understand that more than half of investment was in Bitcoins and the price volatility of this and the Lira could have impacted this situation.
It is astonishing that Turks, who invested in these platforms to protect against rising inflation and unstable currency, are now exposed to in excess of USD 2 billion in financial losses.
This golden collapse would not have happened if the cryptocurrencies had an underlying asset. For example, if Bitcoin was physically backed by gold!
The risks of investing in cryptocurrencies are many and these are serious considerations as follows:

Unregulated Platforms
It would be interesting to see how the investors recover their losses from Thodex and Vebitcoin, and the same would be applicable to all cryptocurrency exchanges world-wide. It is an understatement, that it is not possible to trust and guarantee the performance of such platforms.

No Physical Underlying

The value of the cryptocurrency is derived basis individual speculation and not linked to any physical asset. This is in turn causes huge volatility. It is also unclear if the availability of the crypto units for investment is limited in supply or to infinity. Again a reason for sharp fluctuations in a short period, sometimes overnight or couple of hours. This makes cryptocurrencies extremely risky when looking to preserve that value of your savings.

Unpredictable Exit of Investment

There is no doubt that there is an abundance of platforms that offer cryptocurrencies. It makes it easy to invest digitally and specially in these pandemic times. Hence the growing popularity to such platforms. However, who is the actual market maker that provides 2 way quotes? A highly skewed algorithm; bunch of individual speculators; market forces; it could be a combination of this and more. It is ok when you want to buy, but there is no clear exit strategy which means you could get stuck with the investment till the right time arrives to liquidate.

Does this mean that crypo’s have fallen out of favor? Is it just the beginning? Or is it tiny bump as the history of cryptocurrency is still happening as we speak, so expect more developments to come!

Thank you for watching me. Please stay tuned for more such insightful videos on various topics in the global gold industry. Stay Safe and See you soon.