Investing in Cryptocurrency and Blockchain

SWOT: Cryptocurrency/Blockchain

Strengths

Blockchain advertises itself on its website as the most trusted cryptocurrency in the world. Cryptocurrencies have been growing in popularity because of their perceived decentralization from central banking systems and the security they can offer in largely online transactions (Royal & Voight, 2021). Concerns about inflation have driven interest in cryptocurrency in the past given the uncertainty of the marketplace and policies of central banks (Royal & Voight, 2021). The fact that Blockchain is the best-known cryptocurrency and is more trusted than other, similar forms of exchange in this highly volatile market is useful because on one hand, it is still able to draw the interest of individuals still in search of the next new financial trend, but on the other hand the currency still has greater legitimacy and cache than other less well-known cryptocurrencies. Blockchain has been called the blue-chip stock of cryptocurrency (Sanati, 2021).

Weaknesses

However, cryptocurrencies are still a great unknown for many people, and suspicion of all forms of cryptocurrency is still quite high. Given the highly uncertain financial climate today, people may be more rather than less protective of their finances and reluctant to invest any money in something they do not fully understand or which seems like it may evaporate tomorrow (Royal & Voight, 2021). Investment guru Warren Buffet compared all cryptocurrencies to checks—the check itself is not valuable, it is what the check signifies in the marketplace that has value; Buffet views cryptocurrency as investing in paper wealth that will disappear when it is no longer accorded value (Royal & Voight, 2021).

Cryptocurrencies are viewed as speculative instruments; they are not attached to tangible objects like real estate investments, and their value is solely based upon the willingness of someone to pay more for the currency than the original purchaser (Royal & Voight, 2021). This pertains to the joke that investments are merely a series of finding who is the greater fool to invest in a particular financial instrument (Royal & Voight, 2021).

Opportunities

More people have shifted their financial activities online, using everything from online bill pay to virtually tracking their 401Ks. There is greater ability to engage in outreach regarding digital money, because more and more of people’s financial transactions take place online, as do their sources of information. This can increase both comfort of using online payments (such as PayPal), as well as the fact that so many people use online news sources to learn about the financial world and how to manage their money.

The volatility and risk of the investment may itself be an attraction for some people, who like the idea of gaming the current financial market, and who have limited faith in their ability to significantly profit from it, such as millenials (Royal & Voight, 2021). The fact that Bitcoin has been reported upon as an investment possibility by respected, legitimate sources such as NPR’s Marketplace is another potential argument for more traditional investors to become interested (Sanati, 2021)

Threats

However, the greatest competitive threat to cryptocurrency is the easy availability of other online investments, including standard buying and selling of mutual funds and stocks. For lower risk investors, index funds and other instruments are an easier way to invest money versus such a speculative gamble (Sanati, 2021). A number of recent scandals have also detracted from the perceptions of safety and security cultivated by Blockchain, including people who have bought worthless cryptocurrency on spoof websites (Sanati, 2021). Concerns about online theft and being able to demonstrate ownership of the currency are another barrier. Highly publicized incidents of individuals who have forgotten their passwords likewise have shaken faith in the currency, as unlike traditional banking, remembering passwords is critical to unlock stored cryptocurrency wealth (Sanati, 2021).