Is Cryptocurrency Equal to Real Money?
There are a lot of questions on the subject whether it is worth comparing cryptocurrency with real money and goods. The correct answer is that you need to compare their functionality and liquidity to truly see the value of cryptocurrency.
Only a small proportion of the cryptocurrency is highly liquid both in terms of capitalization and, if possible, doubted by other currencies or commodities.
Liquidity of cryptocurrency (bitcoin and ethereum) is the ability to convert them into ordinary money or goods. That allows using them as a means of payment. A change in their nominal value allows the use of cryptocurrencies as an investment instrument.
With the emergence of cryptocurrency exchanges, highly and medium-capitalized altcoins adopted the speculative character from ordinary currencies.
Over the past year, the cryptocurrency has acquired the characteristics of an investment instrument.
|index||Highly capitalized*||Low capitalized*||ICO**|
|Top-10 on capitalization*||Investing||–||Investing / speculation|
|Top-50(100) on capitalization*||–||speculation|
The emergence of ICO best demonstrates the investment opportunities of the cryptocurrency.
In simple terms, ICO is a mixture between classroom venture ventures and Kickstarter companies.
Companies that conduct ICO provide the opportunity for long-term investment in the company itself with the help of other crypto-currencies, rather than the final money.
Since the ICO is not regulated yet, there was a loophole for projects and people to invest without any legally binding agreement, in fact, only on trust. Although, you can read that 90% of ICO investors do not invest in companies, but do so with a speculative purpose. This is also a new option.
Through the use of ICOs, you buy tokens from a company and, in theory, you can sell them at any time in the market without expecting anything. The work of the ICO market is similar to the stock market, where liquidity is conditionally close to 100%, and only the price changes. However, where it differs is in the large number of ‘junk shares’ although, as a rule, even these are liquid.
ICO also makes it possible to bypass regulation, invest in startups, but at the same time, it eliminates the difficulties of venture investment. Additionally, it allows much smaller players into the market permitting the investment of as little as $1. Neither is your investment limited by location, the user can invest from any location in an ICO for firms based in any location, essentially it adopts the same principles of crowdfunding, but takes them further.
However, for a full-fledged development of the project, the money received from ICO will not be enough, and when converting cryptocurrency into ordinary money there may be problems with liquidity. As a result, there is a place for cryptocurrency at the speculative form, but at this stage, the best blockchain projects after an ICO or tokens distribution will be funded through a classic venture investment model using fiat currencies.
It is therefore worth taking into account the fact of raising the rates by the Federal Reserve in the US. The era of cheap money ends and access to funding will be received by projects with quality ideas.
In conclusion, it can be said that there are two simple ways of cryptocurrency using.
- To study the idea of the company in terms of accessibility/ improvement / optimization and implementation – after investing a) long-term on faith in the idea b) speculative.
- Select the most pre-ICO untwisted projects (which in the long term collect a record amount for that ICO) and speculate on them
And do not forget to take into account all risks that might come with cryptocurrency.