Be a watchful crypto investor

Sajjad Bazaz
Over a period of time, cryptocurrencies (virtual currencies) have emerged as a power house of return on investments. Despite controversies surrounding it, the number of investors in cryptocurrencies is only surging and multiplying in millions across the globe. Global investors have found cryptocurrencies as a dependable diversification tool in their investment portfolios.
The scenario in our country is not different as millions of investors stand invested in various classes of cryptocurrencies. The most amazing thing is that cryptocurrencies are not enjoying legal status in India despite a bill pending for final decision in the parliament. Even as the regulator Reserve Bank of India (RBI) has been showing extreme resistance against granting legal status to the cryptocurrencies in any form, the lack of decision on part of the government has already lent credibility to this class of the currency. In a unique situation the delay has encouraged investors to park their money in cryptocurrencies without fearing for any risk of losing the investment if the Government bans the crypto market.
However, by now it seems that cryptocurrencies won’t be banned in the country as expectations are visible that the regulations may be put in place to mitigate the risk of using these currencies as money laundering tools.
Despite strict anti-money laundering laws in place in India, the nature of cryptocurrencies remaining out of the ambit of Central Banks leaves such laws ineffective. Devising laws to govern the crypto market is a complex issue, as the delay on part of the government in taking a call on the issue indicates that the market is yet to be fully understood by the experts.
Let me not get into the debate of granting legal status or not to the cryptocurrencies. As millions of investors have invested in these virtual currencies, they need to know that it’s not the risk from the government alone, but also from the cyber criminals who have been stealing the cryptocurrencies and remain untraced, causing huge losses to the investors.
To be precise, hackers too have added woes to the crypto market operations. Thefts in the crypto market have been growing alarmingly. Data available reveals that crypto thefts in 2021 were rampant and a record year for crypto attacks in terms of number of incidents as well as the amount looted by the cyber criminals. Across 76 such incidents, $4.25 billion in cryptos was stolen in 2021 – highest during the 2011-21 period, according to a report by the crypto transaction analysis and monitoring platform Crystal Blockchain. Overall, 226 incidents involving 120 security attacks, 73 decentralised finance (DeFI) protocol exploits, and 33 fraudulent schemes were reported during the said period with a total of around $12.1 billion in cryptos stolen. The biggest share in the stolen $12.1 billion between January 2011 and December 2021 was $7.12 billion stolen through scams followed by $3.18 billion taken away through security breaches, and $1.76 billion via DeFi hacks.
Speaking in the local (J&K) context, we have thousands of crypto investors who stand invested in different forms of cryptocurrencies and in meme coins. Of late, we are witnessing a meme coin craze among retail investors who are fearlessly investing after top meme-based cryptocurrencies, Dogecoin and ShibaInu, witnessed massive rallies in the last few months. However, a SQUID meme coin proved a fraud and stoked fears among the meme-coin investors. In a bizarre movement, the price of SQUID meme-coin, launched on October 26, rose over 23,000,000% in a week before falling to nothing on November 02, according to data from CoinMarketCap. It peaked at around $2,862 before falling to a fraction of a cent in a matter of minutes. Known as a rug-pull type of scam, the anonymous founders of the coin suddenly pulled out, taking about $3.4 million of investors’ money with them.
In the local investment scenario in cryptocurrencies, we have been witnessing a huge surge in the number of investors in meme-coins to make quick bucks. Even as the investors were making huge gains in quick time, most of them lost the money at the same speed. Here it makes sense to deliberate upon the meme coins and the risks associated with it.
What is a meme coin?
A meme coin is a cryptocurrency product. It serves no real-world purpose right now and cannot be used as a medium of exchange at merchant establishments or in any other financial transaction. The purpose of most of these coins is to carve out a way to make quick bucks.
Dogecoin is said to be the original meme coin created in 2013. Remarkably, Elon Musk’s tweeting about it created enthusiasm among the retail investors and they started buying the coins in massive numbers. Since then developers have released a slew of meme coins, many of them spinoffs of Dogecoin. Today, according to the website CoinMarketCap, there are more than 5,000 meme coins in existence.
Today, some of these coins have gained popularity because influential celebrities have been talking about them in public. While retail investors are wooed to invest in these coins, they push up their prices by promoting them heavily online. To be precise, meme coins have no real utility at the moment.
Meanwhile, experts are of the opinion that rather than fundamentals, communities who believe in these meme tokens are fueling the rally. “There are no fundamentals driving the prices, as these are just community tokens. These are pump and dump coins, which don’t have any use cases,” they said.
What kind of risk meme coins carry?
Market experts who have a keen eye on the price movement of meme coins are continuously warning that it’s unlikely these coins will still be around in a few years or decades. Once investors move on to a new stock or cryptocurrency, meme coins will likely see their prices plummet. This type of investment is dubbed as very risky and is considered another form of gambling. Recent SQUID meme coin scam should serve as an eye opener for the investors. There are more chances that an investor will lose all or most of the money invested in meme coins.
Precisely, in the backdrop of expert opinions, retail investors shouldn’t don’t get these meme coins. Investment in these coins or tokens is highly volatile and speculative. Better is not to join the rat race and always invest in sound projects with strong fundamentals.
Self-awareness is the important thing to focus on before parking money in any cryptocurrency or meme coins. An investor should educate himself or herself about the cryptocurrency markets and the risks associated with its trading. It’s a common phenomenon with cryptocurrencies to undergo huge price fluctuations in quick time, which means they are high-risk and speculative.
Let them understand that there is no scope for an investor to reverse cryptocurrency transactions, once it is confirmed. Any technical glitch in the chain or human error can lead to loss of investment. The system isn’t foolproof and hackers have been making hay where they steal the crpytos without getting tracked.
(The author is a veteran columnist. The views are of the author & not the institution he works for.)