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Growing up many of us were taught that if anything looks too good to be true, then it probably is. Over the past couple of years the trade in currencies has spurred the interest of many. We see them all over our Instagram feeds. The young millionaires attesting their new found wealth to their involvement in trading currencies. However rather than dismissing their methods of accumulating wealth as “too good to be true”, we decided to dig a little deeper.
Meet Monica Singer, the CEO of Strate, a leading independent provider of post-trade products and services for the financial markets. We had a conversation with her on the latest craze in the world of currency trading: crypto-currencies. Think Bitcoin, since crypto-currencies are to Bitcoin what search engines are to Google. Yes, most of us can’t tell them apart.
There are a range of conspiracies about crypto-currencies and their legitimacy. Are crypto-currencies a legitimate form of investment?
The legitimacy of cryptocurrencies depends on the cryptocurrency itself. Let’s quickly delve into the realm of Fiat currency. Fiat currency is the money we use on a daily basis, and is established by government regulation or law. There are a multitude of case-studies where people have fallen prey to scams and the legitimacy of assets and transactions come in to question.
The fact of the matter is, is that where currency is involved – be it physical, digital, or crypto-currency – there are people within that ecosystem that are ignorant or greedy, leaving the public open to some form of malicious intent.
The key to preventing many scams is through proper education, because if you can understand more about the asset, you will be able to differentiate between one that is legitimate and one that is not.
To your question, I would like to respond with some of the facts, looking at Bitcoin as an example.
I believe that if there can be value or a return derived from an asset over the medium-to-long term, it can be viewed as an investment.
In the same way you buy property, securities such as bonds and shares, or even collective investment schemes, should the price of the asset go up after a period of time, then you have by definition realized a return on your investment.
By way of a cryptocurrency example, if you had bought Bitcoin in April 2016 on a Bitcoin exchange, you would have paid approximately $500.00 for one Bitcoin. Almost a year later, during March 2017, that same Bitcoin would have been valued at approximately $1254.79 which is over $700.00 more than your initial investment – or a 151% growth over the period. Would you not consider that to be an investment?
What is the ease of entry into the world of trading crypto currencies as a beginner?
It’s very easy. Anyone with a smartphone can download the app for one of the crypto-currency exchanges, create their account profile, link their bank account, fund their wallets with a payment transfer from their bank using their respective Fiat currency, buy cryptocurrencies and/or trade cryptocurrencies in real-time. There are no heavy bank regulations around it. Most of the Apps and exchanges are user-friendly and interactive, and also accessible via the Internet.
Looking at how the price of some of them, such as Bitcoin, which you have mentioned, have grown significantly over a short period of time, would you consider them as something one can buy as a long-term investment or are they purely as a means of short term trade and profit?
I think that’s up to the individual and their specific investment strategy and objectives.
I think the true investment is understanding and applying the technology that underlines crypto-currencies.
Distributed ledger technologies, such as blockchain, can play a very important role in transforming society and creating a paradigm shift in the way in which assets are transferred. The technology provides markets with benefits such as transparency, security, immutability and provenance.
In the same way the Internet exchanges information, this technology can transfer assets in a far quicker, safer and more efficient manner that can ultimately reduce costs.
There are numerous proof of concepts globally, and some companies have functioning blockchains or distributed ledger technologies. Some of them have the ability to transfer forex cross-border in a few seconds, or record the origination of every diamond so blood diamonds can also be traced in the system, or address insurance in a completely different approach.
The world is changing and people are embracing the endless opportunities provided by the underlying technology and the convergence with other disruptive technologies, such as artificial intelligence, robotics and big data.
What are some successful trading strategies available for investors in crypo-currencies?
I don’t think there is a perfect answer to this question. Each individual investor differs and takes a different investment style based on their respective risk appetites.
What are some news or information resources available that traders can access that may assist in predicting future price changes in crypto-currencies?
There are various online resources available at the tips of your fingers. Given the nature of this technology, and that it is underpinned by cooperative competition. This involves parties coming together to provide mind-share and create proof of concepts and solutions using the technology and related technologies that underpin cryptocurrencies. They often share massive information across their websites and the media at large.
Are there valuation methods available for crypto-currencies that are similar in nature to those available for valuing stocks?
There cannot be valuation methods for crypto-currency as it is an open market with no assets backing them. The price moves like any other currency based on market sentiments.
Look what happens to most currencies when the government makes major cabinet changes.
Crypto-currencies behave like other currencies. The value has escalated as there is more and more mistrust in central bank backed currencies (Fiat currencies).
Bitcoin exceeded the price of gold in March 2016 that is determined by supply and demand.
There have been news lately about the hard fork of Bitcoin. What are your thoughts on that? And if the currency gets split in two, how do you think this would affect its price and the future of Bitcoin as a whole?
The fork is just a decision that will have to be addressed to reduce the energy use to maintain the blockchain with every transaction from the start of Bitcoin. The complete audit trait in the blockchain is making the blockchain too large and too energy intense to maintain by the miners.
If this is done it will only speed up the process of calculating the entries. The debate is that it would move away from the purist form of blockchain which Bitcoin is still based on.
Other than Bitcoin, what are some other alternative coins that are good options in your opinion?
I personally like Etherum, the cryptocurrency is called Ether.
The network is proving to be very user friendly for other blockchain inspired technologies to be developed. In particular, through the successful use of smart contracts which have the potential to automate many transactions and eliminate pain points to the consumer.
What is your prediction on this market as a whole and its growth going into the future?
I think it’s important for people not to be short sighted by just blockchain. There is a future of possibilities when you look at what problems can be solved when combining distributed ledger technology with artificial intelligence, robotics, big data, the Internet of Things, etc.
It solves socio-political economies and can drive economic growth, give regulators greater transparency and regulatory oversight. Furthermore it addresses core needs of people throughout activities carried out daily.
The technologies can be used across every sector. One needs to open their imagination and embrace a new way of thinking to see the true potential of what our future can hold.