Stock markets have been at the center of investment for the better part of history dating back to 1602 when the first stock exchange was established a
Stock markets have been at the center of investment for the better part of history dating back to 1602 when the first stock exchange was established as ‘Amsterdam Stock Exchange’. It took more than 400 years to establish this system of investment in stocks and equity all across the globe it is one of the most widely accepted and technologically advanced systems of investment. But in last few years a new system of investment have been evolving which has a potential to bring a paradigm shift in the way we think about investment. Yes, you guessed it right it is ‘Cryptocurrency’.
Today Cryptocurrency has many forms, Ripple, Ether, Litcoin, Bitcoin, Bitcoin Cash and much more but it all started with the rise of Bitcoin in early 2009. It was developed on top of decentralized shared ledger technology called ‘Blockchain Technology’. It was designed as a currency and has some useful qualities of currency: ‘Hard to earn, limited in supply and easy to verify’. But the remarkable difference between them is, bitcoin is totally decentralized. Unlike fiat currencies, it is regulated by its holders and not any central bank or institution. It is verified and used by the users only by the use of Blockchain tech.
Since its inception bitcoin has given tremendous returns. In last one year, it has multiplied almost 19 times. This is something which is unprecedented in any form of investment be it equities, bond or other securities. So what makes it so lucrative and why in spite of such returns all bigshots are seen against Cryptocurrencies? And the question remains is that is bitcoin better than the glorious Equity investment?
Following factors will help us in converging to a conclusion:
Bitcoin has all the hallmarks of a classic speculative bubble. It has surpassed all magnitudes of past bubbles like the great South Sea bubble and good old tulip bubble.
It is not backed by any securities and purely depends upon the speculation of the demand. As the supply is limited a sudden increase and decrease in demand can cause a big dip or rise in the price of bitcoin.
“An unregulated space”
Unlike other investment avenues, cryptocurrencies are not regulated by government entities or central banks. There is absolutely no line of authority if someday someone rips off cryptocurrency investment as no one is regulating it. It is next to impossible to get back your investment in case of a hack or theft.
“The issue of legality”
One major hurdle in the path of investors who are interested in investing in cryptocurrency is the confusion about its legal status. While they haven’t been declared illegal, cryptocurrencies are not recognized by the Reserve Bank of India (RBI) or any other authority in India, as a ‘currency’.
“Prone to illegal activity”
Due to the lack of government control, terrorists and extortionists are also utilizing the cryptocurrency space to their advantage. Cryptocurrency users on either end of a transaction can remain anonymous so it can be difficult for government authorities and companies to trace such illegal activities. It can be used for asking ransom or for funding terror organizations without any trace.
“Equity Market is too big for Crypto”
The overall market Cap of all stock exchanges in the world is $69 Trillion. While the Cryptocurrency world has a market cap of $825 Billion.
Clearly, the gap is vast and there is no way Cryptocurrencies can match up to that scale without solving their characteristic problems.
“Not all is bad: Blockchain Tech”
Although bitcoin and other cryptocurrencies are a bit too risky to invest into, the underlying technology used i.e. ‘Blockchain Technology’ can do wonders in the Investment industry. Touted as the next big thing after Internet itself, Blockchain can disrupt multiple industry sectors like Banking, Finance, Logistics, Forex, Medical Sciences, Data Security and many more.
It can reduce the time between transactions and can reduce delivery time of shares from T+2 to minutes. Due to cryptography is can be used to design secure deposits for shares which will be nearly impossible to hack or steal. It can increase the efficiency of the whole system by huge factors. This will increase the overall capacity of the stock market.
In my opinion, cryptocurrency should not be seen as a future investment perspective as it is still very chaotic. But we can work upon the technology which brought cryptocurrencies to fame and integrate it with our current system for higher transparency and efficiency.