Why many people are currently investing in cryptocurrencies.
Investment in any disruptive technology is risky. However, in many cases the higher the risk, the greater the profits. Speculative investment in cryptocurrencies is very risky because the prices are volatile and it is a new technology.
Cryptocurrencies rely on blockchain technology. This allows validating ownership and existence of the currency to be traded. It does not need a third party to process and validate a transaction thereby becoming a threat to banks and all centralised institutions. Furthermore, cryptocurrency transactions are very fast and some of them take less than ten minutes even across borders.
The rise in the market capitalisation of all cryptocurrencies to $147 billion on the 1st of October 2017 proves that many people are now trading and investing in cryptocurrencies. Do investments in cryptocurrencies give high return on investment (ROI) in a short period of time? How do they perform as compared to investments in company shares?
On the 11th of September 2016, Peter and John decided to invest their money for a year. Each had $5000. Peter invested in cryptocurrencies. He bought 1.6043 Bitcoins for $1000 at $623.33 each, 83.4725 Ethereum for $1000 at $11.98 each, 170299.7275 Ripple for $1000 at $0.005872 each, 251.8892 Litecoin for $1000 at $3.97 each, and 82.0344 Monero for $1000 at $12.19 each.
On the 1st of October 2017, Peter's $1000 investment in Bitcoin is now worth $6866.50, $1000 investment in Ethereum is now worth $24710.36, $1000 investment in Ripple is now worth $33445.33, $1000 investment in Litecoin is now worth $13528.96, and $1000 investment in Monero is now worth $7727.64. His $5000 investment in cryptocurrencies is now worth $86278.79 after one year and three weeks.
John decided to invest in company shares. He bought 8.9469 Apple shares for $1000 at $111.77 each, 1.0763 Google shares for $1000 at $929.08 each, 30.7787 eBay shares for S1000 at $32.49 each, 1.2962 Amazon shares for $1000 at $771.49 each, and 25.7931 Paypal shares for $1000 at $38.77 each.
On the 1st of October 2017, John's $1000 investment in Apple is now worth $1378.90, $1000 investment in Google is now worth $1032.29, $1000 investment in eBay is now worth $1183.75, $1000 investment in Amazon is now worth $1246.10, and $1000 investment in Paypal is now worth $1651.53. His $5000 investment in company shares is now worth $6492.57.
Peter made a profit of $81278.79 from his $5000 investment in cryptocurrencies for one year and three weeks whereas John made a profit of only $1492.57 by investing in company shares. This shows that investing in cryptocurrencies gives a very high return on investment (ROI) within a short period of time. This together with the fact that blockchain is a new disruptive technology may be some of the reasons why many people are currently investing in cryptocurrencies.
However, this is not financial advice and neither is it an encouragement to trade or invest in cryptocurrencies. Cryptocurrency prices are very volatile and information on past performance is not necessarily a guide to future performance.
Cryptocurrency prices were taken from https://coinmarketcap.com
Company share prices were taken from http://www.nasdaq.com
By: Takarudana Mapendembe