Expert comment: The Future and Perils of Crypto Currency

Commenting on the future of crypto currency, and the risks associated, Dr Hirbod Assa, a Senior Lecturer in Fintech at Kent Business Schoolsaid: ‘Bitcoin value has dropped by 50 percent since November, reaching a value below $31K. Worries about regulation, security breaches, and the drop in the value of UST, a stable coin that needs to maintain its value at 1 USD, have been identified as other causes of the recent reduction in Bitcoin value.

‘To some, this is the beginning of a larger fall, but some still argue that the increase will begin after a period of drop. What is clear is that the appetite for investment in this market – especially amongst Gen Z – isn’t slowing yet.

‘While the volatility of the crypto markets may appeal to some, with potential big wins come big losses. Digital assets are still relatively new and unknown. For instance, while many believe cryptos are independent of the financial markets and can be used as an anchor to hedge against the market odds, they are highly correlated with major market indexes such as Dow Jones. Noting that as they are inherently more volatile, they are even much riskier. About the behaviour of NFT, our knowledge is almost nullifying.

A picture of Hirbod Assa
Dr Hirbod Assa

‘No expertise can guarantee to make money from a risky asset. In fact, it can even be the opposite. Many studies confirm that making money by sitting on risky assets in the long-run is impossible. This is called the efficient market hypothesis. The argument is simple if you know something better, soon others will know it too. So, while trying new strategies for youngsters is part of their learning-curve, others better think twice.

‘Digital assets are becoming very popular but in many cases, they caused losses or even facilitate financial crimes. Regulations and restrictions that impact trading and ownership are likely – moving the goalposts for crypto currency.

‘Ultimately, digital asset prices are only driven by demand and have no intrinsic value. They are neither based on any discounted future cash-flow, growth rate, or risk. Investing in no or unknown intrinsic value is like betting on the thin air.’

Hirbod Assa is Senior Lecturer in Finance and Fintech and Programme Director of MSc Financial Technology at Kent Business School.

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