Is Cryptocurrency A Good Investment For Millennials?

Dear Millennial, is cryptocurrency a good long-term investment for your future financial stability?

As a small-time American financial security investor with seven years experience, cryptocurrency is absolutely not a good long-term investment for you. Before you get mad and start ranting about how it is the future currency, I want you to be sincere about why you want to invest in it. Chances are you invest in it because you want to have a huge return, when the digital currency price skyrockets.

Am I right?

If yes, you are no different from other intelligent investors out there. A return on money invested, is the primary reason for investments. Therefore, a fundamental analysis of any financial security is necessary prior to investment. This is to minimize the risk of purchasing financial securities with a lot of risks. And when it comes to cryptocurrency, it woefully fails the test of fundamental analysis.

Fundamental Analysis And Cryptocurrency

Fundamental analysis is a financial approach used to determine the intrinsic value of an asset, financial security or products. It considers factors which contribute to this intrinsic value. For example: a traded financial security like a stock of a company has factors such as cash flow (revenue, operating costs, profits), performance (earning per share) and liabilities (debt or such) which determines the intrinsic value of the stock. With cryptocurrency, it is impossible to analyze these factors.

This is because there are none, my good reader.

Besides the lack of transparency with cryptocurrency, it does not have real assets. Unlike other traded financial securities like bonds, stocks, real estate or commodities, cryptocurrency does not have any tangible asset which contributes to capital appreciation or depreciation. For an investor like me, it makes evaluation of the real value or growth projection of any digital currency difficult.

But, 14% of American population own some Bitcoin share according to NASDAQ. Does it not mean cryptocurrency appreciates with time?

Not necessarily. Mostly, appreciation in digital currency is driven by pure speculation. Unlike traded financial securities, the rise and fall of the values of digital currencies are a result of demand and supply factor. This makes them very risky and volatile. A high volatility is not good for any long term investment. Especially, in an investment like cryptocurrency whose values are dictated by demand and supply rather than asset, liabilities, performance and cash flow factors.

Other Problems Of Cryptocurrency

As a value investor, it is important I invest my hard-earned money in assets I can analyze or get detailed quarterly reports from. Besides being able to get a detailed financial report about an interesting pick for evaluation purposes, I enjoy comparing the interesting pick with its competitors over a decade period or more to determine the industry trend. The lack of transparency, underlying assets and evaluation method makes digital currency a big problem for investors with long term interests. Besides these, here are more problems of cryptocurrency to consider.

1. Cryptocurrency Is Not Backed By the Government

The Federal Trade Commission says cryptocurrency is not insured by the United States Federal Government. What this means is in case of a total loss by the third-party storing your currency, the federal government cannot come to your aid. This is one of problems of cryptocurrency that makes it as an unattractive investment.

Unlike the United States dollar, digital currencies bought & stored are not insured by the Feds. You can lose your savings & not get your money back from the third-party saving it for you. So much for the currency of the future, eh?

Not to sound sarcastic, but this lack of federal backing makes the digital currency a dangerous investment for any long term investor. Moreover, it opens the possibility of exploitation by scammers and con-artists. Currently, the Federal Trade Commission puts the exploitation at $80 million. This has affected about 7000 people since October 2020.

When you think about it, it is a win situation for scammers since there will be no accountability to a panel of federal financial investigators. Obviously, this is why you should not consider using cryptocurrency as a long-term financial investment. You do not want a situation, where you lose everything you have because a clever cryptocurrency scam artist.

2. Cryptocurrency Has A Liquidity Problem

With bonds, stocks, commodities and other financial securities out there, it is easy to liquidify. Meaning- you easily cash out and collect your pay without any problems. With digital currency, this is difficult to do. This is because of a lack of secure and trusted exchange centers.

Good grief! Here are more problems of cryptocurrency for the long-term investor, dear reader.

According to a Federal Trade Commission Article On Cryptocurrencies and Scams, there is no legal protection for payment disputes. In other financial products, any payment problem issue after a liquidity can be resolved. This is because there is a legal framework in place to take care of payment disputes. With a digital currency, there is no such in place. Besides the lack of transparency, the complex blockchain processes make it hard to dispute a liquidity problem. This makes payment irreversible.

Finally, the inconvenience of the unavailability of instant cash dispensers like ATMs makes it unattractive for traditional investors like me. I am not saying there are no ATMs out there with option to cash out your cryptocurrency. All I am saying is that they are not readily available. You see, I can sell my stocks and collect my cash in any ATMs within the United States of America within an hour. My investment bank makes this possible. I cannot say the same for third-party digital currency liquidity process.

3. Digital Currency Transactions Are Not Anonymous

Contrary to the belief that digital currencies transactions are private, Bitcoin Organization says its transactions are public. This is one of the problems of cryptocurrency currency. According the organization:

Anyone can see the balance and transactions of any Bitcoin address.

Bitcoin Organization

My good reader, I do not know about you. But, I am not comfortable having my balance and transactions public. I have been investing in American financial securities with an investment bank for seven years. Besides me telling you right now, you will never know. Money transactions should be secure and private.

Don’t you think so?

As an investor, the last thing you want is the public keeping tabs on your every move using an identifier or your pseudonym. This makes it easy to get hacked. Not sure how hackers will do this, but you will agree with me that trades involving a huge amount of money should be kept private. No long-term investor wants to worry constantly about identity theft.

4. High Price Volatility

Like with all traded products, cryptocurrency price increases and falls in a given period of time. However, cryptocurrency price fluctuation is extremely volatile. This is because its value is driven by demand and supply factors. Volatility happens with traded financial securities too, but it is not solely due to demand and supply as in crypto investments. There are other factors in place; factors like economic policies, corporate policies, performance, cash flow, liabilities and others.

High price volatility is one of the big problems of cryptocurrency. Take for instance, dear reader.

CNBC observed Bitcoin drop to $30,000 at one point. For the average long-term investor, this is enough to create emotional and mental distress. If Bitcoin was a stock which suddenly loses $30,000 per share while- assuming its value was $40,000 per share, that is bad news for any investor. Now, it may not look like that on paper but in reality you are screwed if it does not recover. Why am I telling this?

Well, I want you to relate. When it comes to long-term value investment, you do not want high volatility. You want a steady & progressive growth, despite fluctuations in prices. This is because of the risk of getting wiped-out. It is why good investors go for good bonds, mutual finds, ETFs or real estate to protect their long-term investment, since fluctuations in the values of these kinds of financial securities are not severe. This is because their price variations over a given period does not depend on demand and supply factors alone.

Still Want To Invest In Cryptocurrency?

Listen, I am not trying to convince you not to join the current crypto gold rush. All I am saying is to take a step back and think about why you want to buy the digital currency. If your rush to buy is based on a speculative reasoning of a future capital appreciation, then it is not wise to invest into cryptocurrency long term. This is because speculation alone is not enough to guarantee a margin of safety for capital invested. You need to make sure you are not flushing your savings down a drain, because some online bastards promise millions. It is not how you get a good return on your investments, or achieve financial freedom through long-term investment.

In fact,