Crypto’s Golden Risks
On April 30th, 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:
1. Unregulated Platforms
It would be interesting to see how the investors recover their losses from Thodex and Vebatim, 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. Physical gold does not need to be regulated as you own the asset. A cryptocurrency unit is only electronically notional in ownership, till the data gets deleted and/or corrupted.
2. 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. Physical gold provides a real store of value as there is always a global price benchmark for reference.
3. 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. Physical gold provides immediate liquidity options as it is the most trusted asset class globally, proven right from individuals to institutions to central banks over centuries.
Own some physical gold digitally, we know it is the only safe, trusted, guaranteed performance and financially efficient option for now and into very long foreseeable future.