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We recently attended the Alternative Investment Symposium (AIS), an event where students and industry leaders come together to discuss and deliberate upon the field of alternative investments. At AIS 2018, students had a chance to hear from industry veterans about topics such as REITs (Real Estate Investment Trusts), venture capital, derivatives, and blockchain and cryptocurrencies.
While at the event, we spoke to some students about investing in cryptocurrencies. Our conversation revealed three main issues that students consider before making their cryptocurrency-related investment decision. Here, we discuss their concerns and what can be done to mitigate them.
The main source of income for most students is the allowance that they receive from their parents. Investing in cryptocurrencies would require them to draw on these limited resources, which means they have to carefully weigh their options before making investment decisions. Since cryptocurrencies usually don’t have a minimum investment amount, students who wish to go down this route should determine how much money they can realistically stand to lose in case their investment goes awry. It would be a good idea to start small and increase the invested amount after you have spent some time understanding the cryptocurrency markets. However, do note that the tradeoff for investing a small sum is that the transaction fees could consume a significant proportion of your investment.
Francis Tan, the Chairperson of AIS and a year-three student at Nanyang Technological University (NTU), has friends who invest in cryptocurrencies. However, they too pre-determine how much loss they can stand to incur. Francis explained, “Peer pressure and the temptation of high earnings often lead people to invest in cryptocurrencies. My friends invest too, but they also do their due diligence to determine the worst case scenario. They only invest after determining if they can part with a certain sum of money.”
There are over 1,500 cryptocurrencies that are currently trading, so it can be difficult to figure out which ones to invest in. A good way to determine this is to study the function that it performs. Chloe Chew, a year-one student at NTU, said she considers the value of the platform before making an investment decision.
Ethereum, for instance, is best known for its ability to create smart contracts. These are typically legal contracts, but instead of legal terminology, they are created using scripts that run on blockchain technology.
These contracts live on Ethereum’s blockchain, and can be “enacted” without a third-party involvement. They can further be used to develop decentralised applications (“Dapps”), many of which have practical use cases themselves.
On such Dapp, Golem, has been referred to as the Airbnb of supercomputers. Just as one can rent out their apartment on Airbnb, Golem allows them to rent out unutilised space on their computers.
Thus, the use case of a project is an important consideration because it is easy for the value of a coin to soar based on pure speculation. However, if the project behind it does not have any practical application or is unable to handle large-scale adoption, it is unlikely to be successful in the long run.
One of the issues that some of the newer or less recognised cryptocurrencies face is that they are difficult to trade. Most cryptocurrency exchanges function independently, which means that not all of them facilitate the exchange of the same coins. For instance, while Bitcoin (BTC) can be found on most exchanges, it is not necessarily the case for Unikoin Gold (UKG).
In addition, some cryptocurrencies can only be bought using other cryptocurrencies instead of fiat money. Let’s take this example of UKG. In order to purchase it, you’d first need to have ETH (Ether, the cryptocurrency used on Ethereum). If you don’t, you would need to set up an account on an exchange such as Cex.io or Coinbase and buy it. Once you’ve made that purchase, you would then need to set up an account on an exchange that trades in UKG, such as Kucoin, and then change your ETH for UKG.
Benjamin Tan, a year-two student from Singapore Institute of Management, said such issues need to be ironed out for investing in cryptocurrencies to be viable. “Investors may not necessarily find it attractive to open multiple trading accounts and therefore may not consider such coins,” he said.
While such issues may take a while to be smoothed out, investors can refer to sources such as Coinmarketcap in the meantime. It lists hundreds of cryptocurrencies, as well as information about their trading volumes, prices, and which exchanges they are trading on. Once you get an idea of the availability of a cryptocurrency, you can make a more informed decision.
These considerations aren’t all-encompassing, but they can provide a starting point for anyone looking to start their investment journey in cryptocurrencies. There are also plenty of resources available online, for those wishing to learn more about cryptocurrencies.