More crypto hype lately but does that mean you should invest?

Cryptocurrency is getting a lot of attention at the moment. I'm not exactly sure why but my guess is some people like Elon Musk and Matt Damon can talk about anything and it'd suddenly be more popular.

The thing is, crypto's been around for a while - more than a decade - and so any sudden peak in the discussion is striking. Let's not forget that cryptocurrencies are still speculative and unregulated, and never fulfilled the promise of some that they'd replace regular currencies. Yet the public seems increasingly interested. 

For those catching up, a cryptocurrency unit, such as a Bitcoin, is a digital token that can be bought and sold - kind of like a share. These digital "tokens" are created from code using an encrypted string of data blocks known as a blockchain. There are loads of these tokens now, some say more than 5,000 cryptocurrencies in the world and the total value of the market is said to be in the trillions. Blockchain-related tech has thrived over this year alone, with investors pouring billions into it, The New York Times reported this month.

While massive now, it's always been a bit niche though hasn't it? At least to us regular Joes. In articles on the topic, I often read the words 'alternative payment', which implies people are actually paying for items now with this digital currency. Indeed they are.

On a side note, the degree to which something is alternative - like music - is perhaps in the eye of the beholder. It seems to me anything worth this amount of money and this publicised isn't as alternative anymore. It all feels a bit like calling Nirvana alternative.

Still, part of the developing crypto story is about acceptance - or the participation in it by bigger name institutions. As we know, the world's money tends to be managed by conventional finance ideas and traditional bodies. They are the gatekeepers, so to speak, and up until recently they were perhaps fearful of losing their authority to, well, digital currencies. But as the world has learned more about digital money generally, and the likes of Bitcoin have become more commonly understood notions, the banking establishment seems to be paying more attention. If you can't beat them, join them, right?

Why consider the cryptocurrency market now?

The appeal of cryptocurrencies has possibly broadened in 2021, or at least seems to have become more accessible to average punters like you and me, who like many others thought this was all a flash in the pan. But supporters see cryptocurrencies as the future, especially because it removes central banks from managing the money supply. One argument against these traditional money managers is that they reduce the value of our cash with inflation. Others, you might be surprised to hear, argue for the security of digital currencies. Hey, others just like speculating on something that is based on rarity and is rising in value. Apparently you can make money in all this, folks!

So how should we interpret crypto right now as 2021 draws to a close?

Well, it's gaining more traction in the mainstream and that seems to matter to some. For example, CommBank recently partnered with global crypto leaders Gemini and Chainalysis to let customers buy, sell and hold up to 10 different cryptocurrencies through the CommBank app. For a company that focuses on leading the market by meeting customer demand, crypto was apparently a logical move.

Head of the bank Matt Comyn said an opportunity presented itself for the business to innovate and evolve its current app, which its customers could have confidence and trust in when it comes to trading in crypto.

For many such as CommBank's experts, the possibilities around blockchain's security is the key to this. “We believe that blockchain technology can improve economic efficiency, productivity and outcomes, as well as promoting financial inclusion," said Comyn. “Exactly what that proposition looks like and how that evolves over time, is unknown, but as I said, we want to be part of that innovation and we want to be developing that. We do not want to be responding and reacting to it after the fact.” 

In other words, CommBank wants to be in it, as surely other major players do, too. The writing is on the wall: we live in a world where many things are overpriced and so fringe offerings are more easily moved into the middle when there are limited options to those with average funds. 

And so money continues to move toward digital currencies because it seems risky to not be involved. 

If this topic has you excited, it's here that I'd recommend a pause. Technology has become somewhat of a luring siren in the last decade and that's because it's typically built on the idea that whatever is new must be better than the old way. So in theory, a decentralised peer to peer system of currency that doesn't rely on checks and balances by banks, might sound too good to be true to some people. But banks are regulated by governments and that means your money must be managed according to agreed upon codes and standards. In short, banks and lenders are monitored in a formal way that protects your interests as a customer but also seeks to prevent them from failing as businesses. So, your money is somewhat protected against dodgy actors.

But cryptocurrencies don't fall under any regulation in this way and so the possibility that decentralised blockchain-based companies can entice you to invest money in a "project" that isn't compliance checked or suitably controlled is far greater. 

All this is not to say you shouldn't buy into crypto. In fact, from what I hear quite a few people see our financial future heading this way. If you're keen on it, I'd just say read up, learn about portfolio diversification and prepare for market volatility, because recent history tells us this is how it works in crypto-land.

For a little more on cryptocurrency and Bitcoin, check out this feature article. Mozo also reviews the best share trading platforms in Australia.