In June this year, a report from an online news agency came out emphasizing that bitcoin is not money but rather a speculative asset that can be used to facilitate financial crimes. Central banks warned about such a possibility, and they were urged to develop their own digital currencies to satisfy the needs of people who are drawn to cryptocurrency.
The context of this news is within the Australian society, and it seems that the government has been trying to prevent the emergence of cybercrimes. But while it may have some substantial merits, it does not essentially apply to all crypto markets.
There are various countries, especially the United States, that are treating cryptocurrency as a good opportunity for investors to grow their assets, not as a threat to be afraid of. This simply means that not all negative reports on the subject must be entertained without first validating the claims.
The notion that the cryptocurrency is a speculative asset is true, while the fact that it can be used for committing crimes is another thing. But, generally, what deserves the attention of investors is to understand what speculation in the financial market means and how it applies to cryptocurrency. The following facts explain and contextualize the subject for investors to make the right conclusions.
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Understanding Speculation in Financial Industry
Speculation in an academic language is forming an idea about a topic without firm evidence. In the world of finance, it refers to the act of conducting a financial transaction that involves substantial risk of losing assets but also offers the expectation of promising gains. Many investment platforms, such as cryptocurrency, are operating under a speculative system in which the risk of loss is generally offset by the possibility of recompense or acquisition or profits.
Investors who purchase a speculative investment would normally focus on price fluctuations. They are more concerned about generating profits based on the market value changes rather than on risks and long-term investing. For instance, when a certain currency is acquired, it might later be sold at an appreciated rate to earn a dividend. Without the prospect of substantial gains, investors may not engage in speculative trading or investing at all.
What the Bank for International Settlements Says?
According to the recent report, the Bank for International Settlements (BIS) said that crypto tokens such as bitcoin are speculative assets rather than currencies. The institution is acting as a central bank for central banks that aims to foster global financial cooperation. It is known to many people that cryptocurrency has been the subject of ongoing discussions on how it should be treated or categorized. Some governments like the United States have considered cryptos as properties for the purpose of taxation.
In a statement, the BIS underscored: “By now, it is clear that cryptocurrencies are speculative assets rather than money, and in many cases are used to facilitate money laundering, ransomware attacks and other financial crimes.” Many regulators and central banks have been focusing on cryptocurrency, which is also seen as highly volatile in nature.
Why is Cryptocurrency a Speculative Asset?
Bitcoin and its counterparts are more of an asset for speculation and a substitute for gold rather than for the dollar, claimed by the Chairman of the US Federal Reserve. The Financial Times also explained that cryptocurrencies are strings of computer codes that can be created by solving complex puzzles. It operates on blockchain technology that records all financial transactions in the network.
Compared with gold, fiat currency, or shares, cryptocurrency is extremely volatile. This characteristic is almost six times the volatility of the Rand to the US dollar, as financial experts say. When the market is good, any investment is deemed favourable. But when things are bad, it can be potentially devastating for investors.
Generally, most investors would look at both the return and the volatility of the asset before deciding on which one to acquire and hold. Those who have high-risk tolerance are likely to invest in risky and volatile assets like cryptocurrency. More investors are now drawn to the crypto industry, especially exchanges, which is spreading all over the internet and has gained attention from many people across the globe through advertisements.
Conclusion
Cryptocurrency as a speculative asset is likely to attract more investors, despite the precautions coming from state agencies. There is probably no better reason to explain such preference than people looking for opportunities to become real rich quick. This mindset can work either for the bright or worst possibilities depending on how an investor handles such a risky investment.
Risk Note:
Investors who are planning to enter the cryptocurrency market should exercise careful judgment. The industry is highly unpredictable, and there are factors at play that could not be directly examined within the platform. Also, there are possible scams that may expose digital holdings to security threats. Studying more facts about this type of investment would always prove helpful to protect your financial interests.