From people living in metros to small towns, from millennials to seasoned investors from men to women all seem to be inquisitive about this new asset class. The curiosity around this asset class has been rising given the meteoric returns it has given over the short period of time. Everyone seems to carry opinions about the new kid on the block that has become the talk of the town. We are talking about cryptocurrencies.
Consider this: Bitcoin and Ethereum, which are the largest and oldest tokens, have given the return of 93% and 376% since the beginning of this year. This is despite the sharp correction witnessed in cryptocurrencies in April. If this fails to impress you, newer cryptocurrencies like Shiba Inu has given 332% return in just a month. Looking at such meteoric returns it is not a surprise that India’s cryptocurrency market has grown by 641% over the past 12 months.
However, before getting swayed by such high returns one needs to understand the use case of a virtual currency. There are many coins without any use case that have become immensely popular as social media influencers who continue to intervene and affect the crypto world, especially with meme coins. For example, almost two weeks ago, Elon Musk tweeted about his pet dog Floki, which led to a steep rise in the prices of coins based on the same theme. One of the highest gainers was the meme coin Shiba Inu.
“The idea was simple: if enough people believe in something, it will hold value. The fiat currencies we have today get their value in a similar way. A group of people like you and me decide to believe in a piece of paper as a token of value. When all citizens of a country believe in it, it retains that value and becomes a medium of exchange. We trust the caretakers of this piece of paper and trust their promise to manage the economy in a way that keeps the currency strong,” Vikram Rangala, Chief Ohana Officer at Zebpay wrote in a column for Money9.
Dogecoin is another virtual token that has gained popularity based on recent tweets by Elon Musk. “Dogecoin got its value in much the same way, but without a government. As more people bought it, its value increased. Eventually, a few stores started to accept it as payment. When you look at the underlying value of Dogecoin, it really is nothing. It’s just a basic blockchain software that exists only to produce an infinite number of coins. If our central banks do the same thing, we get inflation and in extreme cases, a collapse of the currency,” said Rangala.
Should you invest in coins without any use case such as Dogecoin or Shiba Inu? Given the fact that all cryptocurrencies are highly volatile carrying high risks, it is always advisable to park your money in tokens with strong use cases. Tokens that have nothing as their underlying asset carry the higher risk of wiping your money out.
“You always invest in something you find value in. You buy an art piece because you see value in it and not everyone will like the same artwork. Investment decisions are also personal. However, most successful investors try to look for the underlying value of an asset and its potential to grow in the future. Among crypto assets, Bitcoin and Ethereum have strong underlying value. Both are breakthrough technologies which have fostered thousands of innovations,” wrote Rangala.
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