Very risky investment

Despite warnings on the extremely high risk of putting hard-earned money in so-called cryptocurrencies like bitcoin, the temptation to turn a profit overshadows the losses that could possibly happen.

The Bangko Sentral ng Pilipinas, the Securities and Exchange Commission, and a number of lawmakers have issued warnings to the public on the dangers of investing in these modern “currencies.”

Abroad, the governments of countries like South Korea and China — where many of the cryptocurrency offerings and trading reportedly happen — have launched a crackdown on operators of virtual currency exchanges, with a view to preventing anonymous trading that has lured criminals to this sector.

Japan is also considering doing the same. The United States has likewise been warning against investing in these virtual currencies, knowing that their anonymity and unregulated nature have attracted even terrorists and syndicates.

Why the sudden surge in interest? It’s the potential to make huge profit. Bitcoin, the most popular among the cryptocurrencies, was created only in 2008 and saw a sudden spike in activity just in the past year.

It started 2017 at a price of $1,000 and skyrocketed to more than $14,000. Last week, it was trading at above $13,000.

While the SEC and the BSP may be moving to curb or even regulate cryptocurrencies in the Philippines, Filipinos have access to a big number of online options where they can buy and trade these currencies.

These companies operate from outside the Philippines and, given the international acceptability of credit cards, many Filipinos even go into debt to buy virtual currencies.

Yes, they can make a killing and be able to pay their debts many times over — but there is as well that huge probability of suffering tremendous losses.

For the moment, we can list some basic precautions that Filipinos can take before making the decision to put their money in virtual currencies:

When investing, one should make sure that one is putting in just a very small portion of one’s available fund and, more importantly, that one can afford to lose such an investment. Yes, one must be willing to lose everything that one invested in cryptocurrencies.

The lack of regulation is perhaps the biggest risk and a major reason for the volatility of virtual currencies. The BSP cannot regulate cryptocurrencies, but it can accredit those companies where one can buy or sell.

So if the urge cannot be controlled, it is best to stick with an entity authorized by the BSP, instead of some unknown internet exchange whose owners and even location are unknown.

Also, one should not invest in something that one does not understand. Many investors—including, sadly, the small ones who want to quickly grow their hard-earned savings — are easily drawn by the promise of huge profits.

Indeed, who wouldn’t be tempted by a double-your-money-in-a-week offer, especially if a friend or relative has already profited from it?

This is the main lure of financial scams like pyramiding and Ponzi schemes. Again, if the urge to make money is just too strong, stick to a company that is authorized by the BSP, not with those one sees in ads on social media like Facebook.

The SEC has issued an advisory against investing in virtual currencies — particularly the new ones being offered — following reports that certain companies, individuals, or groups have been enticing the public, either through popular social media platforms or through their own independent website, to participate in so-called “initial coin offerings” and to purchase the corresponding “virtual currency.” Better to heed this SEC warning.

Finally, one should not worry about missing out on this cryptocurrency craze. No one knows when the downswing will happen, and eventually it will.

How very difficult — and at great cost — it will be to get caught in a virtual currency price plummet. It will snowball so fast that one can lose everything one has invested within minutes. That’s the nature of highly speculative investing.

As they say, better to be safe than sorry.