Why You Shouldn't Invest in Cryptocurrencies in 2018

You have probably heard of cryptocurrencies by now. Then you are most likely wondering whether you should invest in cryptocurrencies or not? Well, let me tell you the untold story of cryptocurrencies. The story starts in South Korea. The world of cryptocurrencies has been shaken on Friday by news that regulators are preparing for a ban on cryptocurrency trading in South Korea, as evidenced by the raid on UpBit (the country's largest crypto exchange). The fight against money laundering in cryptocurrency markets is being taken seriously by South Korean regulators who intend to bring an end to the cryptocurrency El Dorado.

Picture taken from IQ Option

Should you invest in cryptocurrencies?

The answer is a big No, at least not now. The recent events in South Korea are going to trigger regulatory interventions worldwide which will certainly lead to a sell-off by investors. The irrational frenzy behind cryptocurrencies will benefit investors who entered the crypto market early - buy low, sell high. However, investors entering the crypto market now are most likely to be the big losers. It is important to understand that the sky-high prices of cryptocurrencies has been largely driven by speculation. The irrational concept of making "easy money" with Bitcoin has made a large amount of investors run for the pot of gold at the end of the rainbow. The large demand for cryptocurrencies coupled with a limited supply has made the price skyrocket, fuelled by speculation.

What happens next?
The rise in cryptocurrencies has been driven by irrational exuberance and speculation, drawing similar characteristics to past bubbles such as the Tulip mania in the 17th century and the dotcom bubble in the late 1990s. Government intervention was always a likely consequence of running a large, decentralised and unregulated payment system involving a high density trade volume. 2018 seems to be the year when regulators will finally start intervening in cryptocurrency markets. What can we expect from regulators?

Well, regulators hate investment bubbles. Regulators will try to deflate the cryptocurrency bubble through a series of raids and investigations. In essence, they will probe any activities which could potentially involve money laundering, terrorism financing and drug-dealing transactions. The endgame will be to provide grounds for establishing a fully regulated cryptocurrency market.

Are cryptocurrencies the future of money?

Regulatory oversight will certainly bring confidence in cryptocurrencies. However, cryptocurrencies still do not satisfy the following key pre-requisites:

1. Store of value - The volatile nature of cryptocurrencies makes it impossible to be used as money. As the value of cryptocurrencies continuously change over time, it is impossible to quote prices for good and services.

2. Medium of exchange - Until cryptocurrencies become accepted everywhere, they will have to be converted into a currency, such as the U.S. Dollar, to be used as a medium of exchange. Hence, cryptocurrencies will be most likely affected by liquidity problems.

3. Limited supply - A world currency cannot be limited in supply and has to expand with the amount of goods and services. Otherwise, it will eventually lead to deflation. Until things change, the limited supply of cryptocurrencies will remain a problem.

Conclusion

I would suggest waiting for the regulatory storm to go away. Let the irrational frenzy fade away and let cryptocurrencies find their true value. No one really knows what will happen next but if something did go wrong or if you think something might go wrong, just remember that investors always flock to gold!

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