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  • Writer's pictureRaj Sukkersudha, Founder of Denver Capital

From Wall Street to Vegas: Is Investing in Cryptocurrency the New Gambling for Millennials?



In recent years, cryptocurrency has taken the financial world by storm, with many investors looking to capitalise on the potential returns of this new asset class. However, there is a growing debate on whether investing in cryptocurrency is more like gambling than investing. While some argue that it is a legitimate investment opportunity, others warn that it is a speculative asset that lacks intrinsic value, making it more akin to gambling than investing.

One of the key criticisms of cryptocurrency is that it lacks the underlying assets or cash flows that traditional investments such as stocks, bonds, and real estate have. This means that its value is purely based on market demand, making it highly volatile and subject to manipulation. In fact, a report by S&P Global found that cryptocurrencies are more volatile than the stock markets, with Bitcoin, the most well-known cryptocurrency, experiencing price swings of up to 60% in a single month.

Over the past five years, there have been several instances where cryptocurrency prices have skyrocketed, only to crash just as quickly. For example, in December 2017, Bitcoin reached an all-time high of nearly $20,000, only to fall to around $3,000 a year later. Similarly, in 2021, the cryptocurrency market experienced a significant correction, with Bitcoin falling by over 50% in just a few weeks.

These price swings have led many experts to caution against investing in cryptocurrency. They argue that investors who buy and sell cryptocurrencies based on hype and rumours rather than their intrinsic value are essentially gambling with their money. Moreover, the lack of regulation in the cryptocurrency market increases the risk of fraud and market manipulation. Cryptocurrency exchanges and initial coin offerings (ICOs) are not subject to the same strict regulations as traditional financial institutions, making it easier for scammers and hackers to take advantage of investors and manipulate prices.

Despite these risks, many investors are still drawn to cryptocurrency due to its potential for high returns. For example, in 2020, Bitcoin had a return of over 300%, outperforming the S&P 500 by a significant margin. However, even those who have made significant gains in the cryptocurrency market admit that it is a highly speculative and risky investment.

In fact, a study by the Financial Conduct Authority found that nearly half of cryptocurrency investors in the UK view it as a gamble rather than an investment. Moreover, the same study found that 75% of cryptocurrency investors were unaware of the risks associated with their investments.

This lack of awareness about the risks associated with cryptocurrency investing is particularly concerning given its high level of risk. According to a report by the Bank for International Settlements, cryptocurrencies have a Sharpe ratio of around -1.5, indicating that they are a highly risky investment with low expected returns.

Investing in cryptocurrency is a highly controversial topic, with arguments both for and against its legitimacy as an investment opportunity. While there may be the potential for high returns, the risks associated with cryptocurrency investing should not be overlooked. Its lack of intrinsic value, high volatility, and lack of regulation make it a highly speculative asset that is more like gambling than investing. Therefore, investors should approach the cryptocurrency market with caution, only investing what they can afford to lose and being fully aware of the risks associated with this new asset class.


 

IMPORTANT: This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualised advice from a qualified professional.



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