Why crypto isn’t the ‘wild wild west’ of investment
Crypto-talk is everywhere at the moment. Even non-investors are now aware that cryptocurrency exists and it’s causing a furore in the media. Conflicting reports of what it is, how it works and who will benefit has led much of the media to liken it to trading in the ‘wild west’.
What exactly do they mean? American history shows the wild west as a time of no laws, huge risks, gambling and life-threatening situations. Is this a fair comparison? I don’t think so, and here’s why.
Blockchain is the future
While cryptocurrency is new, it’s also the most exciting use of technology that we’ve seen so far. Utilising blockchain, cryptos can bring power to the user and remove the impediments that traditional banking puts in the way.
Yes, it’s largely unregulated right now, and of course there are scammers around, but if you’re savvy, it’s a ground-breaking way to invest. All investment incurs some risk, and crypto is no different, but be aware that the corporate machine has a vested interest in not allowing new ways of trading, and that there will be changes before it becomes accepted as mainstream.
The current crypto landscape
In January this year, there were 1,381 cryptocurrencies listed on Coinmarketcap.com. New Initial Coin Offerings (ICOs) are popping up on the market every week.
Some of these currencies have given investors huge gains. Bitcoin is the most famous example of a crypto that was worth very little when it launched and is selling today for £4,726.31, despite massive volatility over the last year or so.
With examples like this, it’s no wonder that investors see cryptocurrency as the future, despite some negative media portrayal. There aren’t any guarantees, and there are big risks, but for those who pick the right currencies, the future is excitingly open.
Reduce the risk
As with all investment decisions, research is key. There are ways to mitigate potential losses with crypto, just as with any other asset class. Solid leadership is essential to the success of any coin, so looking at who’s in charge of the ICO is important.
Who are the people heading it up, and can you trust them? Look for a white paper that clearly sets out the ICO’s goals and reputable endorsements. This helps to weed out fake ICOs.
Obviously, avoid logging into any old site via email as you could see your wallet emptied by scammers. You want to choose an ICO with staying power and a good future.
What about regulation?
If you’re following the market, then you’ll have seen lots of noise in the media from different countries about regulating the industry. Most regulation is still in the early stages, but countries are making moves of different severity.
For example, China closed off all domestic crypto investment platforms a while ago, calling it ‘illegal financing’. France is forcing crypto trading platforms to conform to its business conduct and financial reporting standards, and South Korea has said it’s planning strong action.
In America, regulation is still a grey area, but discussions are ongoing. At the moment, agencies are still deciding whether cryptos are commodities or unregistered currencies, and it’s wise to keep an eye on this.
Crypto trading in the UK
ICOs aren’t completely regulated by the Financial Conduct Authority (FCA), something that has been cited as a good and bad thing. While trustworthy ICOs will issue white papers, there aren’t any minimum standards for the information.
There’s also no market standard for the rights a token (or coin) gives to an investor. Some include traditional securities, while others give the rights to future services. While the impression of many is that there is no FCA regulation for ICOs at all, this isn’t strictly the case.
Whether an ICO comes under FCA regulation is determined legally on a case by case basis. There aren’t any UK regulations or laws that address ICOs, but they might involve regulated investments. Firms who are running an ICO may also be carrying out regulated activity. The FCA also compares features of ICOs with those of IPOs, which includes crowdfunding and collective investment schemes.
Careful investing
Cryptocurrency is in its early stages, and we can expect huge developments over the next few years. It will become mainstream and accepted, and this will mean regulation in most cases. But that shouldn’t stop investors getting involved now.
The ‘wild wild west’ comparison may hold up in some ways as the markets are undoubtedly volatile. However, investors can mitigate risks and choose wisely when entering the market. The rewards could be well worth it.