Vladimir Grigoriev, head of the MBA-Banking Management program at the MIRBIS School of Business, explains what to look for before investing in cryptocurrency. How does a cryptocurrency contribution differ from investments in stocks, bonds, deposits?
What is the difference cryptocurrency from other financial assets?
The cryptocurrency market shows a positive trend, which, of course, spurred investor interest in these assets and again made the question relevant: is it worth investing in cryptocurrency?
Any answer requires arguments and explanations. In the case of cryptocurrencies, you need to start with them.
First of all, I want to remind the main difference between cryptocurrency and classical financial assets (currency, gold, securities) and derivative financial instruments, i.e. instruments based on the value of the above assets.
Speaker: Vladimir Grigoriev, Ph.D., expert in the field of finance and banking
In all these cases, except for the desire of investors to earn on the growth of the value of assets, there is the possibility of an adequate assessment of the value of these assets and the most probable trends in this value. The dynamics of the value of currencies and government debt depends on the state of the respective national economies and the global financial market, the dynamics of the value of corporate securities — on the state of the corporations that issued them and the sector of the economy to which they relate.
Cryptocurrency is another matter. Cryptocurrencies do not have a single emission center (state or corporation), on the state of which their value depends. The growth of their value is based only on the desire of investors to sell the crypt they own, obtained as a result of mining or buying, more expensive than the cost of its acquisition.
The only thing that connects them with the classical financial market is the logic of investment decisions: when the maximum value of an asset is reached, we sell and take profits, and at the minimum value of an asset with growth potential, we buy while waiting for an increase in its value. And, of course, the principle of the ratio of risk and return – the higher the risk, the lower the return, and vice versa.
As for the differences in profitability, investments in cryptocurrencies create opportunities that are not comparable with either the currency or the stock market, much less the gold market.
The positive dynamics of cryptocurrency that have emerged now is based on several factors.
First of all, this is a news background confirming that the blockchain technology, on which the issue and trade of cryptocurrencies is based, is penetrating into the economy more and more deeply, primarily in the financial sector. And that means – there is a future for cryptocurrency.
In addition, the market is awaiting the decision of the US Securities and Exchange Commission (US Securities and Exchange Commission), and as many expect, a positive decision regarding the launch of Bitcoin – ETF. Exchange Traded Funds (ETF) – literally “exchange traded funds” – are American counterparts of our mutual funds. The emergence of such financial instruments means that the cryptocurrency, albeit indirectly, through the fund, receives admission to classical stock exchanges. If this happens, then the rising cost of many cryptocurrencies will surely last and become more impressive. It remains only to know how to trade cryptocurrency on the stock exchange .
And finally, in the global financial market, events are now taking place that indirectly contribute to the rise in the cost of cryptocurrencies. Investors are withdrawing funds from emerging markets, which have become more volatile due to the strengthening of the dollar and raising the Fed’s key rate. But the dollar, even with growth, is after all a conservative and low-profit placement of funds. Therefore, the most risky investors, I am sure, will invest available funds in cryptocurrency. And given the small size kryptorynka this will be enough.
Therefore, the advice will be the following – the ship has not yet sailed a cryptocurrency and it is quite possible to board it. But in order to go with comfort, in no case do not invest in the “crypt” savings, money set aside for the purchase or used for current expenses. It can only be money that is definitely not needed in the near future, and you can easily survive the possible depreciation of your investment and wait for growth.
And remember that cryptocurrency is not such a cozy, almost homely thing, like a bank deposit, a plump wad of dollars or euros, or federal loan bonds . These are very dynamic assets, not only the cost of which, but even the news background around them must be monitored constantly in order to make the right decisions on time. Then the investment will be successful and profitability will pay back the risk.
If there is no free money and you are not ready to engage in constant monitoring of the market, it is better to buy something else for your money. Otherwise, you are waiting for big disappointments.