Calculated Cryptic Risk

Posted by Oliwia Kempinski.

“Cryptocurrency is far more than just a financial innovation – it’s a social, cultural and technological form of progress.” (Cointelegraph) Now, that is just crazy to me. I am part of a shifting generation, one could say at the brink of a fourth industrial revolution. And one of its wonders is cryptocurrency.

Can we talk about this concept for a second? Currency that came out of nowhere, making people rich (or poor). Cryptographic algorithms creating these so-called digital assets. Blockchain technologies regulating these fascinating cash flows. Its effect on the economy surpasses national boundaries and enables transactions completely free from intervention of third parties, say banks. It is far more accessible to the average person. Especially, in our current time, with inflation at 8.5%, it is interesting how crypto plays into the economy. There are two types of investors. The first considers crypto an “investment vehicle as a haven against inflation.” They re-invest and re-invest. The other type prefers to secure themselves with “stablecoins,” if one considers it an alternative to failing monetary policy. On the other hand, during a recession, cryptocurrency, too, is having a hard time. Some call it “crypto winter.” Risk-aversion strategies and raised interest rates are generally lowering crypto investment demand.

Cybercurrency encourages, surprise, cyber criminals. However, not as much as the overall assumption. Ever since legitimate crypto usage increased, cyber criminalism started to decrease. 2021, mere 0.15% of crypto transactions were illicit. But crypto currency’s biggest disadvantage is probably volatility. Many currencies can lose their value in the blink of an eye. One must be aware, that “the value of cryptocurrencies is not guaranteed because of the lack of commerical or central bank involvement,” among other things. Apart from the central bank digital currency (CBDC), of course. Invest at your own risk!

Of course, there are ways of “reading” the currencies. My father is very good at it. He has set rules when investing. He is always informed. The currencies he owns and trades with, he knows absolutely everything about. He knows what happens in the economy. He follows the value of the currency daily. He never sells at the peak and never buys at the low. He leaves himself margin for error. He puts calculated risk over greed. And he is always aware he may incur loss. Despite the best of calculations, there is no assurance of profit.

Oliwia is a Mathematical Finance major at the Stillman School of Business, Seton Hall University, Class of 2024.

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