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This essay sheds light on why cryptocurrencies are an unwarranted investment and identifies the risks of investing in cryptocurrencies. Moreover, cryptocurrencies that you should never invest in and the types of companies with low profit margins that you should desist from investing in are identified in this essay. Furthermore, how low profit margins can devastate a business and strategies for how to avoid loosing money investing in the equities market are delineated in this essay.
Additionally, the formula for generating wealth that can predict the future profitability outlook of a corporation and how to apply the formula for generating wealth to determine if buying stocks in a corporation is a worthwhile investment is expounded upon in this essay. Unconventional investment strategies for how to afford to retire prematurely without ever having to be employed to a company are identified and how to earn substantial money online to be able to afford to make financial investments in the digital era is explicated in this essay. In spite of their allure, an investment in cryptocurrencies is a precarious, unwarranted investment due to their lack of purchasing power and extrinsic value in the market. While fiat currencies may be deemed intrinsically worthless due to no longer being on the gold standard and having been diluted of almost all there purchasing power over the years, they have established extrinsic value, which is why you can procure products and services with fiat currencies, such as US Dollars and Kuwaiti Dinars, and not with cryptocurrencies.
Investing in cryptocurrencies can be deemed an unwarranted investment for a host of reasons.
First and foremost, cryptocurrencies are not income generating assets. This means that they will not yield dividend payments, unlike equities, nor coupon payments, unlike bonds. “Because cryptocurrencies have no earnings, that means it has no P/E ratio by which a rational price can be established. Cryptocurrencies are not even as good as a zero-coupon bond since they have has no maturity date when principal will be returned” (Adkisson, 2018). Cryptocurrencies offer no income stream to the investor and are far more volatile than index funds and mutual funds.
Second, cryptocurrencies are not deemed commodities and are therefore devoid of intrinsic value. “A commodity is typically something that is consumed, such as oil or avocados, leading to demand for more once consumed. There is no demand for cryptocurrency in the consumption sense, and an individual unit of cryptocurrency is not destroyed by a transaction, but rater can be reused over and over such that most demand can be met by existing supplies” (Adkisson, 2018). The supply of cryptocurrencies can also remain ever expanding as more cryptocurrencies are brought to fruition in the digital era. Popular cryptocurrencies can also be engineered to have ever expanding market caps. Cryptocurrencies that are centrally controlled can be engineered to never be characterized by scarcity, unlike commodities that have a finite supply and cannot be virtually generated, such as oil or precious metals.
Third, cryptocurrencies have a track record of failing to retain their values since so many of them have staggeringly plunged in value. For instance, “the flagship Bitcoin has lost 80 percent of its value in a year, which in retrospect does not seem like a particularly good way to store value” (Adkisson, 2018). In other words, you will be fortunate if you can recover even 25 percent of your money invested in cryptocurrencies by the time you relinquish them for fiat currencies.
Fourth, cryptocurrencies are deemed to be unprotected currencies. “With cryptocurrency, there is no governing body to expand or limit the money supply to meet changing events, and utterly no mechanism to prevent widespread price manipulation. This is the primary reason why cryptocurrencies are so volatile is because once a cryptocurrency is launched there is no way to control it" (Adkisson).