With the pandemic causing economic fallout all over the world, people are finding means to increase their finances—with some turning to earning or buying digital assets such as cryptocurrencies as investments.
Cryptocurrency is a digital currency or asset, based on blockchain technology that can be used to purchase goods and services much like real money. Its concept existed as early as the 1980s but did not flourish until 2009 when Satoshi Nakamoto founded Bitcoin, a “decentralized” cryptocurrency. They are earned through “mining” which requires computers to verify transactions and once enough transactions have been verified, miners will receive compensation for their work.
In the Philippines, the Philippine Digital Asset Exchange (PDAX) noted that there is a 70% increase in cryptocurrency transactions and a 15% increase in user growth from December 2020 to March 2021. According to the Statista Global Consumer Survey released in March 2021, the country also ranked third in crypto uptake. This increase was observed during the pandemic where most people lost their jobs and were continuously searching for ways to earn.
Although cryptocurrencies are not a legal tender in the country, the Bangko Sentral ng Pilipinas (BSP) recognizes 17 crypto exchange platforms that are deemed industry compliant. As of writing, only the country of El Salvador has legalized Bitcoin as legal tender.
With the whopping number of cryptocurrencies existing today, they can be purchased directly from accredited platforms such as Coinbase and Coins.ph, which are then stored using digital wallets. This approach can be similar to traditional investments such as stocks and bonds.
However, there are cryptocurrencies that can be earned by doing everyday things like playing games and browsing the internet.
Brave, an internet browser, rewards users with their Basic Attention Token, which can be earned while viewing ads in the browser for a certain period. Recently, Filipinos are trying to earn cryptocurrency by playing a Non Fungible Token (NFT) game called Axie Infinity. In order to earn, players would need to purchase three Axies and play to earn small-love potions (SLP) that can be sold through trading platforms in return for cryptocurrencies like Ethereum.
Advantages and disadvantages
Unlike fiat currencies, cryptocurrencies have corresponding supply limits and the scarcity can increase its price when demand increases. Its values are expected to grow over time as people continue to mine and invest in it. On the other hand, in comparing cryptocurrencies to legal tenders, it has low transaction costs, unregulated market, transparency, and convenience.
Services such as Coins.ph are accepting payments with Bitcoin and Ethereum for paying home utility bills. However, when economic powerhouse China banned all cryptocurrency in financial institutions and online transactions, market values started to decline and fluctuate because the country has been one of the key financial markets around the world.
In 2021, most cryptocurrencies reached their all-time high with Bitcoin stretching its value at about $63,000 and Ethereum at about $4,000. However, it recorded its highest decline from $63,000 in April to $30,000 in June 2021.
Aside from frequent changes in value, crypto is not recognized as a legal tender in most countries and can be prone to security vulnerabilities such as money laundering, hacking, frauds, and scams due to its digital nature.
For now, cryptocurrency will likely stay despite its volatility and questionable legality in some countries. However, once hard regulations on cryptocurrencies are implemented, like what the Chinese government has done, cryptocurrency’s value can decrease rapidly over time.
Should you bother investing in it?
Given the advantages and disadvantages of cryptocurrencies, the golden question remains: Is it a good investment for financial stability during the pandemic?
Yes, if cryptocurrency will serve as an additional passive income or for long-term investment. Despite its recent value drops, it is always expected that value will continue to rise again in the near future as value drops are known to be the best time to invest. It is also best to invest in small amounts to minimize the risk of large losses in the future.
No, if cryptocurrency will be for short-term investment and will be the only means of income. Due to fluctuating values of cryptocurrencies today, it is difficult to maintain the same value over time, and aggressive buying and selling of cryptocurrencies may lead to losses rather than gains.
Like all investments, such as the stock market, investing in cryptocurrencies involves both risks and rewards. Being keen and doing extensive research and understanding what type of investment before proceeding will always be the key to avoid suffering extreme losses.
This article is also published in The Benildean Volume 7 Issue No. 2: Restored.