DUBAI 2 March 2018: When I first heard about Bitcoin, I dismissed it as just another fad like many others did.
Then last year, the cryptocurrency skyrocketed to a point where no one could ignore it. By the time everyone was ready to jump on the Bitcoin bandwagon, it was already trading at a then-record high of US$2,200.
Bitcoin is the first decentralized cryptocurrency that was released in early 2009. Similar digital currencies have crept into the worldwide market since then, including a spin-off from Bitcoin called Bitcoin Cash. In December last year, Bitcoin left many with their jaws on the floor as it shot to high of over $19,800.
Alas, this was not to last. Soon after soaring to record value the cryptocurrency plunged to under $10,000, with experts reporting it could drop down to as far as $1,000 over the course of 2018. This uncertainty positions cryptocurrency in the same basket as gambling and my recommendation is not to go for the bait. If you’re interested in betting you’re money, you might as well turn it into a holiday and just go to Vegas.
Having said that, I can also say I believe more in Blockchain, the technology behind cryptocurrency. Blockchain has transformed cryptocurrencies like Bitcoin into an asset class that stands on its own two feet. Yes, we see the rise and fall of of cryptocurrencies, but we do also see the rise of a new asset class.
Blockchain finance has the potential to be disruptive not only in finance but also other spheres, and it also has the potential to not be transformative at all. Why do I consider blockchain a wiser gamble than cryptocurrencies? You see, by buying cryptocurrencies, you’re not betting on blockchain itself.
Instead, you’re betting on a specific application of blockchain. For your investment to work out in the long run – and I use the term investment loosely here because cryptocurrencies have no intrinsic value – you must be right about blockchain living up to the hype and about cryptocurrency someday becoming useful for anything other than speculation.
Blockchain can succeed, becoming a widely used technology in a variety of applications, and these cryptocurrencies could still be worth nothing.
Cryptocurrencies have been around since 2008. Bitcoin, the first ever cryptocurrency, gained momentum after Occupy Wall Street accused big banks of misusing borrowers’ money, duping clients, rigging the system, and charging mind numbing fees. Bitcoin pioneers wanted to put the seller in charge, eliminate the middleman, cancel interest fees, and make transactions transparent, to hack corruption and cut fees. Thus, creating a decentralised system. 2017, however, changed the game for virtual money.
2017 made cryptocurrency and Bitcoin move from being just a currency to an asset class that people buy and hold. Similar to gold. We are now seeing cryptocurrencies becoming institutionalized. The rise in cryptocurrency is just the stepping stone for the Blockchain technology that will be adopted across different industries.
Despite my belief in the the technology behind cryptocurrency, we must remain cautious. Looking at the volatility of the price of cryptocurrency, it is definitely not a safe investment. Any asset class that jumps up by ten per cent or loses its value with such frightening magnitude in one day is far from what I consider as safe.
The argument for this volatility may be attributed to the maturity of the new asset class but this does not make it a safe investment. The growing frenzy around bitcoin and other cryptocurrency offerings creates serious warnings on the risks that current and potential investors should keep in mind. Potential traders should educate themselves, and trade in a manner that is well informed with realistic expectation.
If you’re looking to invest and invest safely, directing your money into real estate gives you a good 7 per cent to 8 per cent annual return and can be done with fear of devastating overnight price crashes. I highly recommend the purchase of a house in strategic areas of Dubai.
The science behind probable returns it is backed by years of analysis, and even in the event that the market sees decline, the investment risk you are taking is to decrease your annual return from seven or eight per cent to around nil growth, meaning some years there could be no growth, or a drop in value, but you don’t see significant price drops.
Even if value does drop, as long as your property is tenanted you will receive rental income, unlike cryptocurrency which only offers growth as opposed to income. Ultimately, real estate is long term investment with a 10 year strategy and not an overnight gamble, and 2018 is a moment to take advantage of prior to a rising market.
Note: Zaki Ameer is Founder of Dream Design Real Estate