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Crypto currencies

Just last week I was chatting with a friend about Crypto currencies.

I was telling him Crypto Currencies have absolutely no basis to become medium of exchange nor investment value. They are just pure speculative tools.

A lot of people have mistakenly and erroneously compared Crypto Currencies to Fiat Money and concluded they are the “same”.

This is basically because they don’t understand the basic theory of money and the important notion of “Legal Tender”.

There are two incidents this week which are fundamentally different in nature but in essence, they involved concept of money.

The collapse of Sri Lanka economy and the Crypto Currencies.

The monetary policy of Sri Lanka was all in a mess whereby its previous Finance Minister didn’t really understand basic theory of money at all. They just keep printing money as if it’s free money creation magic.
Naturally this will result in disastrous consequences.

For the Crypto Currency crush, they thought they could possibly “peg” their crypto currency to another fiat currency and everything will be solved.

It’s totally misunderstood notion of monetary theory.

The theory of money is more complex than just having the paper fiat money on hand. It involves complex balance of relations to multiple interest rates, inflation, production capacity, legal tender, international usage of currencies in international trades, relative strengths between different currencies, volume of currencies, ability of printing money and creation of credit currency which result in changes in money supply etc.

It would be naive to think that one could just peg a pseudo crypto currency to a fiat currency and it will give it some “backing”.

Ultimately, the basis of the value of a currency depends on its purchasing value and who or what guarantees its status as a medium of exchange.

This is something which naive and ignorant people who only love to make quick money from speculative gambles would ignore totally.

If you think now these crypto currencies are extremely cheap and hopeful that it will rise in value again so that you can make great amount of quick money from it, you are really dreaming.

A pseudo currency that is not legal tender which means not backed by any country’s economy or production capacity, will not regain value once the confidence in it has totally vanished.

Just like the tulip mania incident. Once the market of confidence crushed, it will never recover.

So I would urge extra caution to everyone here who wants to speculate in crypto currency. You may “try your luck” but just use some extra idle cash instead of putting all your wealth in it. It will just be a musical chair of misadventure.

As I have explained to my friend, both fiat currency and Crypto Currency depends very much on the confidence of people in using it, believing it could provide them the necessary purchasing power of goods and services.
The Public Confidence in Fiat Currency is based on the backing of the whole economy of its country via the notion of Legal Tender. However for Crypto Currency, it is based on absolutely NOTHING but pure greed and speculation.

Thus if you want to “gamble” in crypto currency, at the very least, be prepared to lose every penny you are throwing into it.

Well I believe these are part of reasons why Warren Buffett didn’t “invest” in Crypto Currency because he understands these are Not investment but pure speculative gamble.

 

Goh Meng Seng

 

 

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READER COMMENTS BELOW

8 Responses to “Crypto currencies”

  • xoxo:

    Soon ,it will end up like Dot.com bubble.
    It will then be known as *CRAPto currencies*.

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  • extract REAL value:

    //A pseudo currency that is not legal tender which means not backed by any country’s economy or production capacity, will not regain value once the confidence in it has totally vanished.//

    aiyoh. REAL economy or REAL production capacity (getting more competitive and better due to advance; and demand for it has its limit lar ???) cannot support ALL the smart and talented people (who want to get richer and richer ??) of the world lar ??

    so a lot of pseudo economy and imaginative value have to be ‘invented’ and ‘created’ to extract REAL value lar ????

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  • illiterate pap voters:

    In 2022, and the next 30 years, only the RMB is as good as GOLD.

    Hoard it if you can lay hands on it.

    RMB is better than US$ in 2022, and the next 30 years.

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  • Stupid Singaporeans Vote PAP:

    The future belongs to the new generations. Be it money or crypto, the basic theory on “gain, loss & value” has never changed.

    In future, one banana can barter for ten kilo of rice, maybe. There is no right or no wrong in whatever mode used.

    You don’t try new stuff you don’t know. Grow up have a life and give Oppositions a chance.

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  • MarBowling:

    THINK at least 30% SinKaporean are indulging in Cryptocurrency, especially SHITCOIN oops BITCOIN! Some who EARLIER bought at cheap cheap Holee prices and later SOLD off all of them at its PEAK of US$68k are the lucky ones! Out of 1,000 lucky folks THINK about 300 would “CHOP FINGERS AND NEVER TO BE GREEDY AGAIN” aka Sou San aka CLOSED MOUNTAIN would then RETIRED and bought high-end private properties, get a new set of wheels, shake legs all day/night LOONG!

    However, the Ultra GREEDY 700 would continue to LISTEN TO THAT HOLEE WOMAN BY THE NAME OF CATHIE WOOD that the Holee price of BITCOIN would EVENTUALLY reach UD$500,000 in the LOONG TERM! So the current price of US$29k to most of these BRAVE fellas with LION GALL BLADDERS are SUP SUP THE WATER! Like some Cryptocurrency experts have advocated: BUY THE DIP!

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  • Singaporeans R Free Riders:

    GMS, you said:
    Well I believe these are part of reasons why Warren Buffett didn’t “invest” in Crypto Currency because he understands these are Not investment but pure speculative gamble.
    ==================================================================
    Ah…this one I also agreed with you.

    Popularity of a person does not mean you are smart.

    Hahaha… big names does not mean they are smart.
    “They got some very big names on their board,” Buffett said
    Read more here shorturl.at/rwFP6

    The famed investor and Berkshire Hathaway CEO called out Elizabeth Holmes’ blood-testing startup during his conglomerate’s annual shareholder meeting in 2016. He noted that Theranos had assembled a star-studded board of directors — which included former presidential-cabinet members such as Henry Kissinger and George Shultz, two ex-senators, and Jim Mattis, the retired four-star general who later served as President’s Trump’s defense secretary.

    All the big names got scammed big time by Elizabeth Holmes.
    https://www.britannica.com/biography/Elizabeth-Holmes

    Just like a NUS degree person here who insist that the Chinese Taipei President fake degree is real degree, totally disregard the learned Tribunal
    Judge verdict.

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  • Risk:

    Only invest in such risky products only those amounts you can afford to lose.
    High gain high risk.

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  • Singaporeans R Free Rider:

    Risk:
    Only invest in such risky products only those amounts you can afford to lose.<a
    High gain high risk.

    Well said.

    All life is a gamble because we don’t
    know, can’t possibly know the
    the outcome that led up to the
    choices we make.

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