An Introduction To Crypto Assets
By: Shiv Aggarwal
Tags: Cryptocurrency Investment, Blockchain, Cryptocurrency, Investment, Regulation

Cryptocurrencies: Introduction

Cryptocurrencies have been around since 2009 when Bitcoin was initially launched, as the first digital coin. Bitcoin is based on a hypothesis, formulated by Satoshi Nakamoto, which questions the role and need of central authorities, like banks, in the overall financial market and exchange of value across the world. This hypothesis led to the development of the first decentralised digital ledger, known as Blockchain and became the genesis of cryptocurrencies revolution around the globe. Since then a lot of new blockchains and cryptocurrencies have come to the market, each having its own business model and value proposition.

The fundamental idea behind all these remains the same, i.e. removal of central authorities and giving power directly to the people. This idea is quite disruptive, and hence there was a lot of initial resistance from governments and financial bodies. With time, blockchain technologies and cryptocurrencies have been proving their mettle. Blockchain technologies and cryptocurrencies have found applications in almost all industries, including financial services, automotive, healthcare, social media. Cryptocurrencies have also provided a platform for innovative ideas to bloom, through access to investments, not hidden behind massive institutional doors. Aforementioned has forced the governments to start accepting cryptocurrencies, but with a pinch of salt, namely regulations.

Regulations: to be or not to be

Regulations sound like something very restrictive, but they bring order to the chaotic world of any new industry, including cryptocurrencies. Due to lack of a regulatory framework, investors have lost billions of dollars, due to frauds and Ponzi schemes, which are blooming without any quality assurance. Also, without regulations, institutional investors are not able to invest in cryptocurrencies, hence limiting the overall liquidity. The global market capitalisation of cryptocurrencies (roughly 300 billion dollars) is less than one percent of the total financial investment industry, which stands at around 70 trillion dollars.

The legalisation of cryptocurrencies across the world has allowed proper regulatory frameworks to be developed and applied, which has provided guidelines around “how” and “what” can be done in this new industry. It has also allowed for the capability to hold someone, identifiable, accountable for the safety of the investors. This has also opened the doors to institutional investments, thereby bringing the required liquidity and stability to the market.

On the flip side, over regulations or centralisation of authority might nip the growth in the initial phases itself. Hence, it’s paramount to maintain a delicate balance, by providing a light touch governance model, which guides the organisations and the investors and maintain a healthy environment for innovation and growth.

Investments: opportunities or scams

Cryptocurrencies market is currently in its nascent stages and hence very volatile. The volatility poses a high risk to the investors’ money, but at the same time, offers massive opportunities for reaping high returns.

The best part of this industry is that the opportunities are not hidden behind institutional money and are open to any and every individual across the world. There is also no limit as to how small or large investments one can make, making it ideal for investors with any portfolio size and risk appetite.

One key thing about investing in cryptocurrencies is that given its volatility, you should only invest an amount which you can afford to lose. Using borrowed money or selling your belongings, is never a good idea in this market.

There are various propositions of investments available, like existing tradeable coins, new coins through Initial Coin Offerings, indices and hedge funds. You should do proper research before investing, assessing the risk profile, liquidity constraints, investment size and more importantly, invest in something they truly understand and believe.

The best strategy is to invest in something which you fully understand and honestly believe in, and do it from a long-term perspective. There is no harm in taking out some profits, occasionally, but leaving something aside might be a good idea, as some of these ideas could be your future Googles and Apples.

Lastly, you should stay away from investment opportunities offering guaranteed returns. They are just lies and scams.