With so many cryptocurrencies in the news, you might be wondering if you should invest in them. But “investment” may not be the right word — because cryptocurrency, or “cryptocurrency” for short, is, in many ways, more of a guess than an investment.
But what really is the difference between a speculator and an investor? Perhaps the main factor was the differing views on time.
The real investor is in it for the long term, building a portfolio that, over many years, can eventually provide financial resources for important goals, such as a comfortable retirement. But speculators want to see results, in the form of big gains, right now – and are often willing to take big risks to achieve those results.
There is also a difference in knowledge. Investors know that they are buying stock in a company that makes products or provides services. But many cryptocurrency speculators do not fully understand what they are buying – because cryptography is not so easy to understand.
Cryptocurrency is a digital asset, and cryptocurrency transactions exist only as digital inputs on the blockchain, where a “block” is essentially just a set of information, or digital ledgers. But even knowing this does not necessarily provide a clear picture for many of those entering the crypto world.
In addition to time and understanding, there are two other elements that help determine the nature of cryptocurrency speculation:
Cryptocurrencies are subject to really amazing price swings, with big gains followed by massive losses – sometimes within hours. What is behind this kind of fluctuation? In fact, there are several factors involved. For one thing, the price of Bitcoin and other cryptocurrencies is highly dependent on supply and demand — and demand can skyrocket when media outlets and “celebrities” promote cryptocurrencies for a particular offering.
Moreover, speculators will bet that cryptocurrency prices will rise or fall, and these bets can lead to a rush of buying and selling, which again leads to rapid price movements. Many cryptocurrency buyers, especially young people, want to see big profits quickly, so when they lose large sums, which is a common occurrence, they often simply leave the market, which contributes to volatility.
lack of organization
When you invest in the traditional financial markets, your transactions are regulated by the Securities and Exchange Commission, and the companies you invest with are usually supervised by the Financial Industry Regulatory Authority. Other agencies are also involved in regulating various investments.
These regulators work to ensure fundamental fairness of financial markets and to prevent and investigate fraud. But cryptocurrency exchanges are fundamentally unregulated, and this lack of oversight has contributed to the growth of “fraudulent” exchanges, manipulation of the cryptocurrency market, excessive trading fees and other predatory practices.
This “wild west” scenario should be a concern for anyone who puts money into crypto.
The cryptocurrency market is still relatively new, and it is certainly possible in the future that crypto will become more of an investment and less of a speculation. In fact, Congress is actively studying ways to regulate the cryptocurrency market. But for now, the buyer’s warning – “Let the buyer beware.”
Neal Logan is a financial advisor to Edward Jones and can be reached at firstname.lastname@example.org. This article was written by Edward Jones for use by Edward Jones’ local financial advisor.