In the early months of 2022, the stock market witnessed a massive sell-off of stocks and other risk assets. Arif Efendi says that this was because of the rising inflation, expectations of a hike in interest rates, and the tension between Russia and Ukraine. In an unstable economy, investors must diversify their portfolios and this is where investing in crypto comes in.
Is Cryptocurrency a Currency or an Investment?
Cryptocurrency is a virtual or digital currency that is stored in a digital wallet. Arif Efendi believes that it eases the need to make payments across the world without having to carry and exchange physical cash.
Transactions using cryptocurrencies are secured by a technique known as cryptography. This makes it impossible for users to double-spend or even create a counterfeit according to Arif Efendi.
An outstanding feature of this digital currency is that it is not issued by any central body. As a result, there is no government interference. You can mine the currency or purchase from an exchange or a broker.
Some popular cryptocurrencies are Bitcoin, Ethereum, Litecoin, and Ripple. Each coin has its uses.
Beyond being a transaction currency, cryptocurrency serves as a means of investment. Many people who are interested in digital coins trade them for profits. Investors buy and hold for a long or short period, then sell off when there’s a price increase. Although some countries restrict the use of crypto, El Salvador became the first country to adopt Bitcoin as a legal tendency.
Arif Efendi on Printed Currencies versus Cryptocurrencies
Fiat or printed currencies and cryptocurrencies facilitate payments, but they are not the same. Arif Efendi explains below are some of their differences.
Regulation
Since fiat currencies are issued by the government, the central bank regulates them. They are also regarded as legal tender. However, government policies can affect their value over time.
Cryptocurrencies are decentralized digital assets. As a result, they are used without the influence of the government. Some countries do not support the use of crypto because they assume that it is used for money laundering and other illegal activities.
Form of Exchange
You can exchange fiat currency in both electronic and physical forms, but cryptocurrency can only be exchanged in digital form. This is because the currency is embedded in a series of codes.
Storage Method
Fiat currencies are stored in banks, home safes, or fiat wallets. Cryptocurrencies are stored in crypto wallets. Fiat wallets also serve as a means of converting government-issued currency to digital assets.
Benefits of Cryptocurrencies Over Printed Currencies
Cryptocurrency offers a lot of benefits compared to printed currencies. Arif Efendi mentioned that they include the following:
Decentralized System
Crypto is based on a decentralized system. Therefore, nobody has the power to control its value or circulation. Each transaction is recorded in a ledger just as banks record transactions. However, it does not expose the personal information of users. This prevents data breaches and fraud.
Serves as a Hedge
Digital assets like Bitcoin can be used as a hedge against inflation. During inflation, more money will be in circulation but scarce items will cost more.
Bitcoin is designed to remain scarce irrespective of what happens in the economy. Therefore, thousands of dollars will be able to purchase a few coins. And there is a high chance that the coins will appreciate in value.
Payments Across Borders
With cryptocurrency, you can send money to people in other countries within split seconds. The transaction fees are minimal and the process is hassle-free.
Printed currency, on the other hand, will take days or weeks before it will get to the recipient. And the fees for such transactions are exorbitant. In some cases, your transaction will be declined because of tension between countries, sanctions, and regulations.
Risks of Using Cryptocurrencies
Here are some risks associated with using cryptocurrency according to Arif Efendi.
Extreme Volatility
Cryptocurrency is highly volatile. You can amass a lot of wealth within one month or less and lose everything in the twinkle of an eye.
Delay in Getting Returns on Investment
Older investors and advertisers make beginners believe that they can start getting high returns immediately. In reality, you may not earn so much on your investments until after a period of consistent trading and proper risk management.
Account Tracking
Although cryptocurrency transactions are locked with codes, they leave digital trails. The FBI can decipher the codes and track the accounts of ordinary citizens.
Conclusion
Arif Efendi speaks about cryptocurrency as a digital asset that you can use for secure transactions. You can also invest in it to diversify your portfolio. This article discussed the differences between printed currencies and cryptocurrencies. It also shared the benefits of crypto over paper money.
Just like other investments, Arif Efendi stresses that cryptocurrency has its own risks. He advises that people ensure they contact a professional financial advisor before investing.
