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Financial Friday #116: Cryptocurrency Down, but not Out!

Friday, July 1, 2022   /   by Mario Daniel Sconza

Financial Friday #116: Cryptocurrency Down, but not Out!

The luster of that shiny gold coin often used to depict bitcoin has definitely tarnished over the last few months as cryptocurrency values have plummeted. Bitcoin is down about 50% in 2022 and others like ethereum have faired even worse. Despite the downturn, many investors continue to eye cryptocurrency because the underlying concept and technology has the potential to drastically transform the future of money and payments. Of course, there has also been a lot of pure speculation as well, with many people piling into crypto due to fear of missing out or trying to get in early on the next bitcoin.


 
One issue with cryptocurrency is that due to its relative newness (bitcoin was launched in 2009), extreme volatility, and the fact that "what it is" can be a little hard to wrap your head around, plenty of myths have been spawned. It also doesn’t help their credibility when someone like Warren Buffett publicly states that he wouldn’t pay $25 for all the bitcoin in the world! Regardless of whether you are on the crypto bandwagon or still have your doubts, check out these four common myths and make sure your opinion is based on fact, and not fiction.
 
1. Cryptocurrency has no value and isn’t real money.
The value of cryptocurrency comes from the faith or confidence in the people who own it and it isn’t backed by any assets. You could say the same about cash money, but cryptocurrency doesn’t have the backing of a government like a Canadian or US dollar. In hard times, some say that “faith” in crypto’s value could quickly disappear. It isn’t “real money” usually refers to the fact that the transaction cost and processing time aren’t yet practical for everyday purchases. Even crypto fan and Tesla boss Elon Musk gave up on accepting Bitcoin as a form of payment on their cars after only a few months.
 
2. Crypto is a great way to make money
Like any other investment, you can make (and lose!) a lot of money in crypto. It is highly volatile which amplifies the size and speed of gains (and losses) to extraordinary levels compared to other investments like equities or (LOL) interest on cash. Cryptocurrency is exceptionally risky and if you are looking to invest, that risk needs to be understood and offset by holding more financially stable assets. The critical consideration is to manage your overall risk, and that comes from having plenty of diversification within your investment portfolio.
 
3. Crypto is a fad and will just fade away in a few years
Bitcoin has been around for more than 10 years so it isn't all that new. The blockchain technology underpinning cryptocurrency has a lot of merit because it allows transactions to be processed and information recorded while also making them very difficult to be hacked or cheated. Whether or not technology will win out and drive widespread acceptance and implementation of digital currencies remains to be seen. Price volatility combined with the existence of many “meme” cryptocurrencies has done little to improve their fad image with multiple dog-themed coins, Mooncoin, and even one called Unobtanium – ostensibly because scarcity is good when it comes to value!
 
4. There have been security hacks and “nefarious” dealings
There have been some very high-profile cases of cryptocurrency disappearing, but it’s important to distinguish between the security of the blockchain transactions themselves, and the wallet or trading platform used to buy, sell and hold cryptocurrencies. For example, 30 -year-old Canadian and Quadriga crypto exchange founder Gerald Cotton mysteriously died in India in 2018 and took the passcodes to unlock $250 million of his crypto exchange customer’s money to his grave. Some say Cotton faked his death but there is no proof to back up such claims — the money has yet to be found. Cryptocurrencies have also been used by criminal organizations in computer extortion schemes and darknet drug dealings.
 

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Information is provided exclusively for consumers’ personal, non-commercial use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing. Data is deemed reliable, but is not guaranteed accurate by the MLS®. Copyright 2022 Last Updated December 2, 2022
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