Virtual Currencies as an Investment Asset

March 11, 2018

      The number of virtual currencies is growing by leaps and bounds.  As of early 2018, there were over 1,300 different virtual currencies.  These currencies are also known as cryptocurrencies. According to Wikipedia, a "cryptocurrency is a digital asset designed to work as a

 

medium of exchange that uses cryptography to secure its transactions, to control the creation of additional units and to verify the transfer of assets." Cryptography is essentially the science of data communication and storage in a secret and secure format. There is no centralized bookkeeping like with traditional currencies.  There is no centralized bank. Instead, the books for cryptocurrencies are kept in a decentralized distributed public transaction database called a blockchain, which functions as a ledger.

 

     Bitcoin, formed in 2009, is the most popular cryptocurrency at this particular time.  By 2015 more than 100,000 merchants accepted Bitcoin as a method for payment.  More venders are signing on continually. Bitcoin was recently listed on the New York Stock Exchange as an index. Exchange traded funds (ETF) based upon bitcoin are being established. 

 

     Before we get anyone confused we will get right to the point.  Can small investors purchase and invest in Bitcoin and other cryptocurrencies?  The answer is yes.  This investor believes that the best and safest way to invest in cryptocurrencies is through short term trading.  This is where we purchase Bitcoin and other cryptocurrencies through short option contracts and then sell these contracts within a very short period of time. 

 

     The bottom line is that cryptocurrencies can be traded exactly like foreign currencies. One binary option broker lists almost 70 different cryptocurrencies for trading. Many of these currencies are actively traded on worldwide over-the-counter marketplace.  However, the long-term investment status of a cryptocurrency like Bitcoin is uncertain. Many regulatory agencies and traditional currency experts have a skeptical view of cryptocurrencies. The historical volatility of Bitcoin certainly has contributed to this skepticism. Bitcoin has risen in value from zero to around $20,000 per coin.  It has recently settled down to the $10,000 price range. 

 

So, the bottom line is this -- cryptocurrencies are a risky proposition as a long-term investment.  But as a short- term trading vehicle they could be useful. This investor recently purchased and sold several option contracts on a few cryptocurrencies. I had some wins and some losses, just like all of my short term investment deals. So why not give it a shot? Good luck and happy investing!                        

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