FEATURE: Bitcoin – are you gambling or investing?

A look at the brief history of Bitcoin scams and successes and how to tell whether you are making a sound investment choice or gambling.

DURBAN, April 20 (ANA) – With the recent hype surrounding the surge in the price of Bitcoin, many first-time investors have stormed their way into the cryptocurrency market.

There are around 4,000 cryptocurrencies, but Bitcoin accounts for the lion’s share, holding more than 50% of the total market capitalisation, according to TradingView.

Ethereum is second with around 12.7% of total market cap, followed by Ripple, which holds a little under 3%.

But how can you be sure whether you are investing or gambling with something as complex as a cryptocurrency?

According to South African actuarial scientist Imran Lorgat, having a thorough understanding of the crypto market and how it works is paramount before committing your money to it.

“Many invest in cryptocurrencies without a solid grasp of the basics. If you are interested in buying Bitcoin, then invest time into researching how it works and the risks associated with owning Bitcoin,” Lorgat told BusinessTech in February.

Lorgat has spent the past five years investing in Bitcoin and considers it to be both a breakthrough in digital technology and a highly volatile marketplace.

Investopedia describes cryptocurrencies as a form of digital assets based on a network that is distributed across many computers, which uses blockchain technology to store its ledger transactions.

Essentially, Bitcoin has no control or regulation from a central banking system, meaning there are no restrictions or fees that go along with it.

This leaves many newcomers at the mercy of brokers.

Last year, Gauteng-based investment company Mirror Trading International (MTI) pulled off the scam of the year by fleecing investors of more than R8 billion, according to a crypto crime report by international cybercrime organisation Chainalysis.

The company operated the scheme under the name BTC Global.

The report estimates that the number of victims who were scammed out of their money to be in the hundreds of thousands.

The report also showed that South Africa ranks fourth in the world in terms of receiving the highest volume of cryptocurrency from illicit addresses.

“MTI presents itself as a passive income source. According to its website, users simply deposit a minimum of US$100 worth of Bitcoin, and MTI promises to grow it using an AI-powered foreign exchange trading software,” the report explained.

“The site indicates that customers can achieve consistent daily returns of 0.5%, which would translate to yearly gains of 500%. Algorithmic trading is a common premise for many cryptocurrency investment scams.”

The level of economic uncertainty brought on by the outbreak of the Covid-19 pandemic has added another layer of anxiety to those with financial woes, making a high-yielding investment all the more compelling for those less clued up.

But every coin has two sides, and the last year and a half has seen the price of Bitcoin rocket to an all-time high price when it broke the US$60,000 mark in early 2021.

Those who held onto their Bitcoins would have seen monumental returns on their original investment. The fact that there will only ever be 21 million Bitcoins in circulation makes it a highly sought-after commodity and this could push the price even higher in the near future.

But understanding short-term and long-term investment value is a key driver when making a sound investment choice, explained Lorgat.

“The price of Bitcoin over the long term is driven by supply and demand, as well as adoption and technological development of the currency. However, in the short term, the price is driven mainly by hype and emotion.”

Choosing a reputable broker or platform on which to trade these currencies is vital.

“If you decide to put substantial amounts of money into Bitcoin, then spend some time researching safe off-line storage. Consider purchasing a hardware wallet from a reputable company,” he added.

– African News Agency (ANA); Editing by Yaron Blecher