Cryptocurrencies, NFTs and Metaverse – rewards and risks
There are many success stories about people making lots of money with Cryptocurrencies, NFTs, and Metaverse and one might feel fear of missing out (FOMO). However, there are many more failure stories so before you decide to invest in cryptocurrencies or NFTs for the purpose of financial and retirement planning, let’s look at the positives and potential risks.
Cryptocurrency
Inflation hedge and high returns. Many cryptocurrencies claim that they can be used as inflation hedge due to a cap in supplies and the most popular ones have risen substantially since their introductions.
On the other hand, thousands of new cryptocurrencies are being created virtually every day and the price swing are very volatile and most have failed to gain any traction.
Complex, opaque and cyber security – You need to buy from crypto exchanges and then worry about where to store them. Besides high transaction fees, you also need to worry about cyber security from being hacked. Since cryptocurrencies are unregulated or illegal in many countries, you are on your own and no one can help when things outside of your control happen.
Environmental unfriendly – many cryptocurrencies need to be mined by computers. The amount of electricity used in the process increases as more people get into it and might further worsen inflation.
Regulation – Global IT firms like NVidia, Intel, Microsoft etc. will not oppose cryptocurrencies because they can sell more software and hardware facilitating the mining and transactions. However, it is hard to believe global powers like China, US, Japan and UK etc. are willing to let cryptocurrencies threaten their own conventional currencies without regulations.
Singapore attempts to get the best of both worlds as it appears to be very supportive to crypto-providers but at the same time prohibits related marketing activities to its general public due to high risk.
Scams, Frauds and Money Laundering – Cryptocurrencies have been used to facilitate many scams, frauds and money laundering efforts. Bitcoin is a popular form of ransom payment.
NFT
NFTs are being promoted by many aspiring and even prominent artists in the culture and art space as they can bypass intermediaries and agencies to sell to their fans directly. It is actually a very good use case if conventional currencies can be used directly as payment without converting to cryptocurrencies.
Like any cryptocurrencies, you need to worry about storing NFTs and IT/security concerns.
Copyright Infringement – NFTs can also be created virtually and copied easily. When your NFTs are stolen or if there are copyright disputes, you are again on your own and no one can help
If cryptocurrencies are required, all the risks and complexities listed above will apply as well.
Metaverse
Metaverse is another hot topic and there are many virtual applications in gaming, education and even real estate. Again, please be extra cautious whenever cryptocurrencies are involved.
Many giant and upcoming technology companies like Microsoft, Google, Facebook and Roblox etc. are already exploring opportunities in this space. You may consider these companies/ETFs/funds instead of potentially risky proposals.
Conclusion
The markets for Cryptocurrencies, NFTs and Metaverse may further expand and make many more millionaires or billionaires. However, they are not good investments for long-term retirement planning due to their volatile nature and potential risks. For pure speculation purpose, you might set aside a very small percentage of your investment portfolio as play money and try your luck.
There might be some practical use cases for Blockchain, the underlying technologies of NFTs and cryptocurrencies. Please be extra cautious whenever cryptocurrencies are required in exchange of your conventional money.
When you evaluate whether to allocate money in these new exciting schemes for their potential returns, please also consider if they align to your values and all the potential risks involved.
Last update: 12th April 2022