Just funny money – or worth a bet?

PREMIUM


Though bitcoin has been a major money spinner for some, not everyone is convinced that it is a sound investment option.But one investor, who says he has made a bundle out of the cryptocurrency, advises: “The next time you plan on spending R1,000 or more on shoes, consider investing in a cryptocurrency instead.”Since penetrating the public consciousness about 10 years ago, with the launching of bitcoin, dealing in cryptocurrencies has developed into a multibillion-dollar industry.Cryptocurrency is essentially a medium for the exchange of value (just like ordinary money) that exists in the digital world and relies on encryption technology to make transactions secure.South African foreign exchange trader Clint Fester first dabbled in cryptocurrency in 2013, when a bitcoin was valued at $65 (R921.05 today).He said trading in cryptocurrencies could be profitable and was an easy way of transferring funds.“At the time, I bought five bitcoin. But a friend of mine bought hundreds.“Today she is a multimillionaire, just off bitcoin.“As the years went by, I started buying more and more.“Unfortunately, I got a bit too excited when bitcoin reached $1,000 (R14,170) in 2015, and sold about 90% of my bitcoin portfolio.“The very next year it reached about $20,000 (R283,400).“Imagine if I had just held on for another year. But that’s the risk you take.”Fester no longer holds bitcoin but is now into other cryptocurrencies, such as Ripple’s XRP.XRP is now priced at US32c (R4.54).Fester said XRP was used to represent the transfer of value across the Ripple network.It is intended to be a mediator of other means of exchange, whether crypto or fiat, the latter being the state-backed money we carry.“At this time it does not make sense to buy bitcoin, which costs $5,551.12 (R78,838.12) for one,” Fester said.“Investors should be cautious about investments – they are not something you put your entire life savings into.”Cryptocurrencies, of which there are about 1,600, are subject to decentralised control as opposed to control imposed by states’ central banks.The decentralised control of each cryptocurrency depends on “distributed ledger technology”, typically implemented as a blockchain.A blockchain is a public financial database that records a perpetually growing list of transactions. Bitcoin is the best known cryptocurrency and, right now, the most valuable.Nelson Mandela Bay investment management company Mi Wealth co-founder Chris Dicks said he did not believe that cryptocurrencies were a feasible investment for newcomers.Unlike stocks, or commodities such as oil and gold, they did not have an intrinsic value, he said.“If you’re a trader, yes, you can definitely keep trading,” he said.“But if you’re looking for an investment, you have to consider a five- to 10-year holding.“The future of cryptocurrencies is too vague.“When you talk about a currency it must [be possible to use it] as such.“You must be able to go to a coffee shop and pay with cryptocurrency as you would with your credit card.“Then you would be using it as a form of bartering, but in my view it is not an investment,” Dicks said.Every cryptocurrency is different but most share the following basic characteristics:● Transactions can be global and are irreversible. After you send a cryptocurrency payment and the network has confirmed it, you cannot reverse it;● Holdings are anonymous. Anyone can establish a “wallet”; no identification is required.

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