Global cryptocurrency fever and massive admiration for blockchain technology have raised the concerns of many experienced investors. Cryptocurrencies look promising, but is it worth it to unconditionally believe in their future?
Money is a very abstract and mysterious concept. Not all people realize where they come from and even less understand why money works that way. Over the years, only representatives of the scientific community, financiers, regulators, and other professionals really understood the economy.
Then came the era of blockchain, which gave the world money that was completely protected from fake. On its basis, a new financial reality began to develop instantly. Some people are not at all embarrassed by the fact that in reality, finances work on other principles.
However, nothing can give more confidence and optimism than a lack of knowledge. While professionals began to carefully analyze the risks associated with money legalization, court protection issues and taxation opportunities, thousands of enthusiasts began to create new digital currencies and crypto-exchanges. Issuers of securities and financial intermediaries quickly appeared on this market.
There was a huge stir around cryptocurrencies, which contributed to the influx of large capital into this market. This allowed many investors to get rich very quickly. A number of financial players in the cryptocurrency market are lucky, and they, having drawn conclusions from their own mistakes at the beginning, are now actively working on the development of infrastructure.
In the end, professionals will find answers to all the questions that interest them. But they will not be discovered by those who are now standing by and watching the development of events, but by those who actively act at their own peril and risk.
21st Century Gold
The idea of a distributed database made a splash, and at some point, enthusiasts decided that it could be used to improve almost all aspects of the financial system. Want to use a single global currency - not a problem. After all, the concept of cryptocurrencies is based on the fact that their emission will be limited, and central banks will not be able to control the circulation.
Many people started talking about the fact that digital currencies are the money of the future. But in reality they only copy a popular idea from the past. At one time, gold was taken with the same enthusiasm. It was not easy to obtain, it served as a measure of value in the global dimension and was practically not controlled by the authorities.
But gold has not become a universal currency, and today it is difficult to find a solid economic system in which it is used as a currency. There is a logical explanation for this. States that implemented the idea of a regulated money supply based on maternity money were able to achieve more significant economic growth than countries that continue to use the gold standard.
Gold has lost its weight due to growing competition among economic models. It took less than 100 years for the main precious metal to lose all of its monetary functions.
In fact, cryptocurrencies are the 21st century gold, for the extraction of which it is necessary to spend a huge amount of energy on mining and maintaining the network. But for some reason, the creators of the cryptocurrency boom are sure that their brainchild will not suffer the fate of gold.
Surprisingly, the long-term sale in a circle of a limited number of virtual coins inspired investors with unprecedented optimism and caused the cryptocurrency market to capitalize up to $ 160 billion. In recent years, all popular cryptocurrencies have experienced unprecedented growth. Its peak occurred in 2017, when bitcoin and other digital currencies were talked about all over the world. This added to the work of central banks and other financial regulators who can no longer pretend that the cryptocurrency market lives its own life.
On the other hand, investors can be understood. The market is now experiencing an overabundance of financial resources, and investment in traditional assets does not bring the desired return. For many, the emergence of the cryptocurrency securities market has become a panacea. And here investors began to repeat the mistakes of their predecessors.
People began to raise capital through the sale of securities to investors several centuries ago. Then this market worked as simple as possible. There were no laws governing the work of joint-stock companies, securities commissions, special requirements for market participants and investor protection mechanisms.
Now blockchain has again made the market democratic. The cryptocurrency community will have to cope independently with a number of challenges, such as the fight against scams, the creation of honest and fair rules of the game, and the guarantee of protection for the subjects of the cryptocurrency market.
Of course, you can admire the stories of successful investors who, against the backdrop of the growth of cryptocurrencies, have made huge profits, but you need to think about the fact that money cannot be made from the air in any financial system.
After all, the financial market is subject to the rules of the game, which have been formed over many centuries. However, so far few people are trying to look into the future. Everyone just wants to make the most of the cryptocurrency boom and give birth to an idea that will allow you to grab at least a small piece of this delicious pie, decorated with the money of millions of inexperienced investors.
Blockchain: the future of the financial world or bubble
Over the past few months alone, thousands of businessmen around the world have announced their intention to develop their own product, which will use the blockchain. To raise funds, they will need to conduct an ICO (initial coin offering). If traditional startups take care to show a solid presentation to potential investors, then representatives of cryptocurrency projects focus only on their ideas, but not on their presentation.
It is noteworthy that many startups do not even think that in their particular case, the blockchain does not provide any advantages. Moreover, the implementation of some ideas would be faster and cheaper without the use of fashionable technology. But among these startups, only a few can become successful.
Few startups who attract investments through ICOs pay attention to an objective assessment of the business. They do not explain how investors can profit from their projects. In fact, the latter are offered to play a game of chance like roulette: one project out of many will surely “shoot”. Another way to earn money is to successfully resell your securities to other investors amid unhealthy excitement.
Most startups conducting ICOs want to acquire their own cryptocurrency, using it for services and payments to investors. They expect that along with the turnover the value of their currencies will increase. At the same time, startups do not pay attention to the fact that this will not only complicate settlements with customers, but will also complement the investment risk with currency. As a result, any currency fluctuations can be fatal for the startup’s core business.
Sometimes it seems that the main goal for cryptocurrency projects is to create “bubbles”, and a business idea serves only as a tool to achieve it.
Of course, in order to make an investment idea popular, it is necessary to provide significant returns. In this context, the cryptocurrency boom has given the financial market more than the actions of authorities and professional participants combined.
But in the cryptocurrency market with the naked eye, there is a discrepancy between expectations and reality. If the intrinsic fundamental value of the projects that investors are now investing in does not equal the expected cost of the bubbles, interest in the cryptocurrency market will begin to fade. This means that millions of inexperienced investors will suffer huge losses. Such a situation may violate a number of basic principles of the market, and investors after this are unlikely to provide funds with past enthusiasm.
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