Even with the significant drop in value that Bitcoin experienced at the start of 2018, interest in cryptocurrencies remains high. Some even argue that now – when prices are comparatively low – is the time to buy.
Consider that the value of one Bitcoin rose from $800 in January 2017 to over $7000 in November 2017; an increase of 775%! With reports of Bitcoin millionaires and overnight riches circulating, it’s no wonder that many still want to get involved.
It’s reported that many South Africans have been borrowing money in order to invest in Bitcoin. Here are some things to consider before pursuing this course of action.
What are cryptocurrencies?
Cryptocurrencies are digital or virtual currencies that work independently from the banks. They are secured and verified via cryptography.
What determines the value of Bitcoin?
A few things determine the price of a cryptocurrency. Primarily, these include supply and demand, how secure it is, how widely used it is and the public’s current perception of it.
Because Bitcoin is currently the most valuable and widely used cryptocurrency, its value has an effect on the value of other cryptocurrencies.
Criticism of cryptocurrencies
Ultimately, cryptocurrencies have value only because enough people agree that they do. Along with concerns about lack of regulation, this has been the basis of major criticism of cryptocurrencies.
However, similar could be said for other kinds of financial instruments too, such as certain types of derivatives. Even where there is a more direct link to underlying assets, perception obviously plays a huge role in determining value. The volatility of the South African rand and of stocks on the JSE are proof enough.
A more significant consideration is the extreme volatility of cryptocurrency markets. If very big wins are possible, very big losses are too – and there’s currently little to control or help predict the course that the Bitcoin rollercoaster takes.
Is investing in Bitcoin a good idea?
Cryptocurrencies are high-risk investments.
As of February 2018, the value of Bitcoin had dropped by 50%, sending other cryptocurrencies into decline as well.
Experts remain divided on whether there’s a future for cryptocurrencies. Some are advising investors to cut and run, while others argue that cryptocurrencies are the likely currencies of the future – and that buying now, at low prices, is a worthwhile risk.
The fact that big banks have started investing in cryptocurrencies suggests that they’re far from doomed.
It’s unclear what direction cryptocurrencies like Bitcoin might take over the coming years. It is possible that the ideal time for investing in cryptocurrencies has already passed.
How do you invest in Bitcoin in South Africa?
Generally, investing involves creating an account, making an electronic fund transfer (EFT) to an online platform, waiting for the funds to register and then simply choosing how much to invest. The same platforms make it possible to sell cryptocurrencies.
The value of a cryptocurrency will depend on trading volumes on a specific platform, as well as on broader trends.
Borrowing to invest in Bitcoin
According to debt experts, the number of South Africans borrowing to invest in Bitcoin has been growing, with some people even taking out second bonds in order to invest. In some cases, this ends with people accumulating unmanageable debt and applying for debt counselling.
Experts blame the volatility of cryptocurrencies for most people’s losses. Bitcoin has shown remarkable growth over the years. However, there have also been times when its value has dropped suddenly and dramatically, with little to no warning.
What we offer at lamna
At lamna, we don’t offer financial advice – but we do recommend caution in the case of borrowing to invest in Bitcoin. As for any other high-risk investment, it’s a good idea not to invest any funds you can’t afford to lose.
If you do need funds to see you through, however, we offer fast, discreet loans against the value of a wide range of assets. For more information about using an asset to secure a short-term loan, contact us on 086 111 2866 or simply complete and submit our online application form.