Tuesday, December 19, 2017

To Buy or Not To Buy

Before I start, I must apologise to those that had ask me about cryptocurrency previously. If I told you I am not going to invest in cryptocurrency, I was very sure about my decision then.

Right now, I am not so sure. 

Do note that I have yet to purchase any cryptocurrency at this point as I try to setup my Coinbase account, which could take a while. If by the time I complete my setup and cryptocurrency has gone over the roof, then I will give up on it.

By now, you still do not know about cryptocurrency, bitcoin or blockchain. I suggest you can google, there will be so many articles out there for you to read and understand.

Some of the websites I recommend is:

1. Probutterfly Blog
2. Got Money, Got Honey!
3. bgting post on InvestingNote

Prior to explaining about the reasons that change my thoughts of cryptocurrency, I will like to talk about Cryptocurrency Mining and the Semiconductor Industry (Information that was not explained thoroughly).

Picture taken from Blockgeeks.com
If you still do not understand cryptocurrency mining, you can read this and this article. Basically, in order to be a miner for a particular cryptocurrency, you will need to be a bookkeeper for that cryptocurrency. As a miner, once you verified a transaction and found the special "key", you will be rewarded with a certain amount of that particular cryptocurrency. It is like a mission - accept the quest and race to find the reward!

In order to win the race, a "miner" need VERY GOOD chipsets in its computer/systems to be faster than others. Just look at this farm in Russia and this in China! The requirement of hardware is huge!

Throughout my research of blockchain technologies, many articles recommend readers to buy AMD, Nvdia and Intel. This is because the high profitability of mining cryptocurrency in the initial stages led to the high demand for good chipsets. This affected the whole of the semiconductor industry positively. This is also shown in the companies that are within the semiconductor industry, such as UMS, Ellipsiz and Mico-Mechanics, which had very good earnings over the last few years. So here you go, for those that are still wondering why these companies did so well over the last few years!

In addition, if you think you missed out on the bitcoin craze, don't fret! Because if you have invested in these semiconductor/semiconductor-related firms, you will have made gains as well!

So after knowing these information, why did I change my mind about cryptocurrency?

1. More People Starting To Be More Vocal about not investing in Cryptocurrency

At times, I tried to be contrarian against the norm in order to make more gains than others. Thus, recently, I felt there are more and more negative voices against cryptocurrency. It makes me wonder if there are more people on the sideline than my initial feel. If these people have yet to join in this craze, does it meant that there are still room to grow?

2. The Greater Fool Theory

The person that invested because he did not know anything, or the person that did not invest because he did not know anything. Who is the greater fool here?

I personally felt that if you do not know anything, you can always go and researched about it (I used almost a week to try to research about it). This is because cryptocurrency maybe gone one day, but the blockchain technology seem to be here to stay.

3. Importance of Blockchain Technology

I had a conversation with a friend previously and he said cryptocurrency is a proxy to its blockchain technology. I had researched enough to understand blockchain technology is here to stay. Therefore, the only way to invest in a blockchain technology seems to be buying into its cryptocurrency.

4. Increasing In Usage/Acceptance

Even through China banned cryptocurrency exchanges and ICOs, there are still many other increasing signs of usage and acceptance.

Bloomberg has recently added Ethereum, Litecoin and Ripple to its terminal. This japan company is intending to pay part of its employees salary with bitcoin. Japan has also accepted bitcoin as a legal tender. PWC is accepting bitcoin as payments. The establishment of bitcoin futures and bitcoin ETF also indication of wider acceptance of cryptocurrency. Finally, closer to home, MAS has also yet to reject the idea of cryptocurrency.

5. Cashless Society = Cryptocurrency?

Since we are moving towards a cashless society, doesn't that meant the possibility of using cryptocurrency to pay items in the future is much higher?

6. Uses of Cryptocurrency 

Do note that I am not too sure about this point. If I am wrong, do correct me in the comments below!

Since I concluded that blockchain technology is here to stay, it is important to note that blockchain technology will require miners continue to operate on the blockchain to process each transaction.

Miners will then continue to be rewarded in cryptocurrency. Even if the cryptocurrency runs out, they can continue to each transaction fees (But if this occurs, will it be cheaper for corporates to continue to engage in the use of the blockchain technology? Hmm...).

Furthermore, to facilitate a transaction within a blockchain, it seems that there is a requirement for the transaction to be done in the particular cryptocurrency of that blockchain.

Therefore, it seems that cryptocurrency do have a use mainly because of blockchain technology.

But I am still hesitant due to the risks involved...

1. Misunderstanding of Cryptocurrency

Many people do not understand the uses of cryptocurrency and are only "gambling" on cryptocurrency, by keeping it in hope that the price will go up further in the future. This is possible because some of them do have a limited supply.

However, if cryptocurrency were suddenly widely recognised and used, this could drastically cause the price to fall significantly!

2. Government Regulation

In my opinion, I believe this is the biggest risk to cryptocurrency, but the implementation will be hard and it may not happen within the short term!

One of the reasons I believe is that an arbitrage opportunity will arise if a single country puts a regulation onto the usage of a cryptocurrency.

For example, Country "A" puts a fixed "price-tag" on a certain cryptocurrency and the other countries did not follow suit, an investor could go to Country "A" to buy the cryptocurrency and sell it elsewhere to earn a spread!

For the regulation to have a huge impact, I believe it must come from a united organisation with all the major countries being involved in. Nevertheless, I do not believe this can happen in the short term.

3. Hackers

Recently, there are article stating that North Korean hackers been stealing bitcoins. Furthermore, there have been numerous past cases that cryptocurrency exchanges have been hacked and many bitcoins were stolen or lost.

This is, in my view, the current biggest risk to investors in the cryptocurrency space.

4. Possibility of A Crash Due To Cashing Out

If the current miners tried to sell all their cryptocurrency, there will be a significant downward pressure on the price of the cryptocurrency. If everyone started selling and you are caught off-guard, the liquidity of the cryptocurrency will run out and you maybe stuck with a worthless cryptocurrency unit.

This is akin to investors still holding onto Noble shares.

5. Unable To Scale Up The Blockchain Platform

I have read some articles, like this and this, stating that some of the blockchain platform are unable to scale up further. In that case, if the blockchain platform is unable to scale up, will it "disappear" one day? If the blockchain technology disappear, then the cryptocurrency will be gone too.

There is another possibility of having numerous "private blockchain" as well. Then will "miners" end up being employed just as employees and cryptocurrency disappearing?

In Short
Picture taken from Cardschat.com
I have to admit I still do not know much about cryptocurrency and blockchain. Every new article is like a new reason to buy or not to buy. Every opinion is locked into my mind like a criteria.

But picture say a lot of words. If I ever had the possibility to own some cryptocurrency (If my verification can be completed soon...zzz...), I will be treating my purchase of the cryptocurrency like "gambling". It should only consist a small part of my portfolio, most probably only around 1%.

In addition, do note that I only mention more about cryptocurrency rather than bitcoin in this summary. This is because as a value investor, I try not to buy anything that is just way too expansive.

Nevertheless, I felt that my thoughts are much more organised after writing this post and more questions in my head were answered as I found the answers (Although that could led to more questions...).

Through the writing of this article, I also found other ways to continue to invest in this craze - Companies engaging in blockchain technology and Semiconductor-related companies.

Anyway, if you are interested to know more about The Ultimate Scorecard or Full Analysis, do visit the Fundamental Scorecard website for more information! Do sign up to get the latest scorecard of the SGX counters now!

Oh... and do remember, please like our Facebook page (T.U.B Investing) and follow me on InvestingNote.

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