Alberto García M

December 19, 2023

A common concern among savers and investors relates to the possibility of exploring this ‘financial instrument’ to generate returns.

Those who have acquired these instruments have had all sorts of experiences: horror stories of losing all their money, cases of genuine luck akin to winning a lottery ticket, or simply people who gained or lost money as if they were in a casino or making sports bets.

The popularity of ‘cryptos’ has recently grown under the argument that they are the currency of the future, yet their boom is due to the contagion effect from various entrepreneurs and celebrities who have invested part of their wealth in them, finding people like Johnny Depp, Katy Perry, Kevin Durant, Tom Brady, Snoop Dogg, Leo Messi among others; this list also includes magnates such as Elon Musk, Jack Ma, or Mark Zuckerberg.

Naturally, when it becomes public knowledge that global icons from sports, cinema, or music own such assets, it creates a greater desire among the population to acquire them despite strong opposition from investment gurus like Warren Buffet or businessmen such as Donald Trump, Arturo Elías Ayub, to name a few.

Regardless of the noise and the existing approval or disapproval, various points need to be analysed.

The evolution from current money to digitalisation

Cryptos have anticipated the digitalisation process offered by banks and governments by several years, being somewhat aggressive due to the evidence of transactional evolutions in society. 60 years ago, ATMs were practically non-existent and it took almost 30 years for them to be adopted as a financial tool; the evolution from cheques to magnetic stripe cards took many years… electronic banking started to be implemented in the late 90s but their heyday began several years later, however, they have not achieved the purpose for which they were designed: to eliminate branch banking transactions, leaving a long way to go.

Having said that, moving to 100% virtual money requires a much more gradual evolution and the next big step is to unify transactions from different banks into a single application and generate payment transactions without the need to use plastics. For this reason, it still seems too distant that cryptos will achieve the boom proposed at this time.

< Ca$h is the King >

Cash or banknotes remain the most <effective> method for transacting due to efficiency, social convenience, and most importantly: the recognition we have of it, so it still seems too distant that ‘cash’ will be nullified by digital currencies, still being the leader in financial transactions of the world for over two centuries.

Government Regulations and Validity

A determining factor in generating trust is based on the endorsement of central banks as the highest monetary authority; in the case of digital transactions in banks and fintechs, society trusts the banks because they are regulated by the government. Cryptos are not regulated by any entity so it requires more an act of faith, a situation that is uncomfortable for many investors as they are susceptible to large-scale scams, money laundering, and lack of controls.

Currencies are NOT investment instruments, but transactional ones

When buying cryptocurrencies, one is really exchanging one currency for another, like when we buy dollars in exchange for pesos. One of the fundamental factors for buying dollars for various savers is to maintain a higher value than that of the original currency based on the backing of the North American economy (the most important in the world); for this reason, many people buy dollars around the world and by doing what is mentioned, various savers have noticed that they can gain a return based on their currency against the fluctuations of the dollar, selling at a higher price than the purchase.

To view cryptocurrencies as an investment instrument is basically a mistake, as it is a digital currency that also does not have backing by a central bank; considering that it may be the currency of the future, the bet is to start acquiring the currency at a lower price with the hope of having a much higher value that allows us to acquire the purchasing power of my savings, however, the volatility is so high and there is so much instability in it, that it has become a kind of Forex with many greater risks.

Verdict: Is it recommended to invest in them?

Basically, no. It is an instrument that lacks ‘real’ foundations with high volatility and essentially does not meet the characteristics of being an investment or savings instrument, it is just another currency.

It may be an option for the adventurous who are lovers of betting or casinos and if considered within an investment portfolio, it is advisable to place a minimal portion of our savings as an experience.”