Cash, or crypto? Time for a re-think 

By Anthony Mutunga

In December 2017, cryptocurrencies were on the rise as bitcoin had hit its highest value at the time recording a high of Sh2.35 million ($20,000). Scores of people, mostly those with high risk appetite, invested on cryptos with an aim of making quick cash. The fear of missing out is what pushed up the demand. 

What followed was a crash that many did not anticipate – the price of bitcoin dropped by 65% and other cryptos soon followed. The prices dipped to below Sh1.17 million ($10,000) till October 2020 when they started to rise again. Cryptos reached new levels, as bitcoin hit over Sh7.98 million ($68,000) in November 2021. However, it didn’t take long for history to repeat itself – 2022 has seen cryptos fall again, and bitcoin’s price has dropped by more than half to stand at a price of between Sh2.93 million ($25,000) and Sh3.52 million ($30,000).

 This has seen the value of cryptos hit below the $1 trillion mark for the first time since January 2021, to stand at about Sh109.08 trillion ($930billion) from Sh340.17 trillion ($2.9trillion) in November 2021.

The dip has been attributed to several factors from the Chinese government banning crypto transactions to rising inflation and interest rates. With inflation at an all-time high across the globe, stock markets have taken a hit and the crypto market has recorded a similar fate. 

For example, the US has been forced to increase its interest rate by 0.5% due to the high inflation. As a result, this has created a competition for capital, with safe investments being more attractive and reducing investment in technology stocks and cryptocurrencies that are high-risk assets.

China on the hand has banned cryptocurrency trading and mining. The government says the trend has negative effects on the business environment. China has a goal of carbon neutrality by 2060, but due to accounting for about 75% of bitcoin miners and other crypto miners, this goal was greatly threatened. 

With cheap electricity and relatively easy access to manufacturers, China was home to many crypto miners which means that the growing energy consumption due to mining was associated with more carbon emissions. The ban has ensured that the country is back on track to accomplish its objective.

In addition, key players in the technology space such as Bill Gates, who is the Microsoft founder, have continued to make it known that it is not worth investing on cryptos, after all. Mr Gates recently said that cryptos are 100% based on the “greater fool theory”, referring to the idea that overvalued assets will go up in price when enough investors are willing to pay more for them.

“I’m used to asset classes … like a farm where they have output, or like a company where they make products, as for crypto, I’m not involved in that. I’m not long or short any of those things…. I like to invest in things that have value. The value of companies is based on how well they make great products. The value of crypto is just based on what one person decides how much another person will pay for it,” he said. 

With many looking for advice from investors of Gates calibre, the crypto market is unattractive at the moment. It is tumbling big time. As many move out of the market due to the above factors, the situation also highlights how different investors handle volatility.

For short term investors, those focused on making a quick cash, once the market dipped, many bolted, causing the market to fall further. This category of people took an unmeasured risk – they bought into the hype and invested in crypto without enough information. 

On the other hand, the investors who waited for crypto prices to dip researched well and studied the trends. It is a game of buying when the price is low and selling when the value goes up. Those doing it for the short term might experience poor returns as cryptos have maintained their prices, meaning mostly a loss for those expecting to cash out in short term.

However, those who are in it for the long term may still record profits as was the case for those who practiced HODL (Holding On for Dear Life) during the 2018 crash – cryptos have proven to be more beneficial as long-term investments, but research and information on data as well as volatility in the crypto market, should be key to making the ultimate decision.  

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