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15 Nov

Is investing in cryptocurrencies gambling?

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Over the past years, digital currencies have been in and out of the news which of course is not surprising considering the crazy run of appreciation by Bitcoin, a form of cryptocurrency in the past months. Just as there were several noises about how digital coins are the investment of the future; there are also the cautionary voices urging people to take precaution before throwing in their hard earned money into the cryptocurrency craze. However, one of the arguments against cryptocurrency is that it is not an investment in the real sense of it.

According to the critics of digital coins, putting money into cryptocurrencies cannot qualify as an investment since there is too many volatilities with the currency and so many of the individuals rushing in to buy these digital currencies don’t know what they are getting into and the risks involved. But, before we continue, it is essential to examine trading cryptocurrencies in the light of what investing and gambling means.

Investing according to Investopedia is an act of committing capital or money to a business, real estate, projects, etc. with the aim of earning additional income or profit. The website went on to describe investing as including the amount of time spent in studying the prospective company. While on the other hand gambling is defined as the act of placing a stake at any game of chance with the hope of winning. Gambling in most cases relies on luck and probability and not so much on research. Herein lies the only similarity between investing and gambling – both involve moving money into a position with the hope of recouping the initial amount in addition to extra income. However, a fundamental difference is that while investing involves a conscious and calculated risk – that is investors study and understands the business before buying. Gambling does not include any rigorous research. 

So having defined what gambling and investing mean; is investing in cryptocurrencies gambling? 

Well, depending on the school of thought you belong, it can either be a gamble or an investment.

At the forefront of dissenting voices against crypto is Warren Buffet, the genius investor according to him if someone buys some hard assets like say, a farm, a piece of real estate or shares from a company, the individual expects the investment itself to deliver the dividends for you.

Now, if however, you buy some cryptocurrency like Bitcoin, you don’t really have anything that can produce anything. You’re just hoping the next guy that comes along pays more.

This according to Warren Buffet is not investing but speculating, and that in his view speculation is a form of gambling. Just like Warren, several other prominent financial gurus see buying cryptocurrency as playing a game of chance. However, digital currency enthusiasts like Erik Finman, see trading cryptocurrency as a form of investment. Though, he cautions that one should do their due diligence and truly get a grasp of the industry before putting in their cash.

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