What are your thoughts about cryptocurrency?
It’s an interesting day to be asked about cryptocurrency. News has just emerged of a cyberattack on Binance involving an estimated US$6.3 billion in digital assets. Apparently, a compromised employee laptop may have helped make it possible. That’s an extraordinary amount of money to lose through something as ordinary as a laptop.
I’ve never invested in cryptocurrency, largely because I don’t understand it beyond the basics. I do understand something of the economic thinking behind it. Its philosophical roots can be traced, at least in part, to the Austrian School of Economics, with its emphasis on monetary scarcity, decentralisation and freedom from government control. I can appreciate the intellectual argument without necessarily being convinced by the investment proposition.
I remember Rene Rivkin once describing the stock market as something like a fashion parade. I can see what he meant. But at least with shares, I can look beyond the fashion to examine the business underneath. I can assess its financial health, consider its prospects and decide whether I want to support the goods and services it provides.
With cryptocurrency, I’m less certain what I’m supposed to be examining. To me, it feels like speculation. Prices depend more on what people are prepared to pay than on any underlying value I can measure. Of course, speculation happens in the stock market too, and there may be genuine value in some cryptocurrencies that I don’t yet appreciate.
But there’s another dimension to investing that matters to me. I want to understand not only how an investment might make money, but also what I’m supporting by investing in it. Making a profit isn’t my only consideration.
Perhaps cryptocurrency will prove to be one of the great investment opportunities of our time. I don’t know. But I’ve always believed that if I don’t understand and believe in what I’m investing in, I probably shouldn’t be investing in it.
What are your thoughts about cryptocurrency?
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