Recent extraordinary event have caused a definite shake up in the financial world that, if you didn’t have all your assets in a blind trust, you were going to notice. The decoupling of credit card payment platforms. The freezing of assets of, not only individuals and companies but even, central banks is unprecedented.
The point of all these sanctions was to prevent persons and companies who support or have profited from the organizations that are the Russian and Belarusian Governments from accessing those funds abroad. One solution that appears to be being used to get money out, or convert it into a more stable currency, is to use crypto currencies to transfer funds. Do not be surprised if this loophole is closed in very short order.
Online Payments not involving a financial institution
The original intention of bitcoin was to create: “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.” Unfortunately, this is perfect for avoiding sanction; bitcoin transfers would provide a bridge between two banking that have been decoupled.
Now, to their credit, some cryptocurrency exchanges have started to freeze specific wallets. But who is to say, someone hasn’t managed to get a hold of a wallet that doesn’t draw the attention of sanctions. It would not be unexpected for a government regulator to conclude that individual targeting may not be sufficient. It may be decided that a more general approach may be faster and more effective. Certainly, as the banking systems of Russia and Belarus have been disconnected, many people have been affected who could be viewed as unfortunate bystanders. But you know, that was the point; to put political pressure on the administrations in Moscow and Minsk.
Governments can, and do, Ban and Limit Crypto Currencies
I’m not saying they should, but it is completely possible for a government to ban the use or possession of cryptocurrencies and their wallets. Examining this page, Legality of cryptocurrencies by country or territory, we can see that there are numerous different reasons why some governments have limited or banned the use of cryptocurrencies. Upon review of the many reasons that limitations have been implemented, I feel it’s entirely possible that, the desire to impose sanctions on specific combatant countries, might prompt a broader ban of cryptocurrencies in otherwise crypto friendly countries.
In my previous blog post, Crypto Currency Investing, Yes or No?, I did mention that governments could simply declare them to be illegal. If your money isn’t legal, it isn’t worth much. At the time I wrote that blog I could not have dreamed of any series of events that would lead us here. But yet here we are. An investor would be unwise not to consider the possibility of a complete ban in their country.
What should I do?
The blockchain technology isn’t going away and investing in that technology will likely be profitable. But I’m speaking of the technology behind blockchain and services that can be provided with it. The actual cryptocurrency itself may actually devalue or disappear, but the technology will remain. If a ban or a freeze affects you, the value of your investment will instantly plummet.
Only Invest What You Are Comfortable Losing
Don’t invest money into direct cryptocurrencies if you require that money to live. Only invest what you can comfortably say, “that’s okay if it’s worthless now, doesn’t change the way I live.” For most of us, we don’t have a lot of tolerance for investments that could go to zero.
What if I’m not comfortable right now?
Like any investment, you should routinely, ask yourself why you got into buying crypto currencies? Are the reasons that you entered this position still valid? If not, perhaps you want to leave that position, either harvest gains or cut loses.
Do not give into FOMO.
Professional and successful investors spend much of their time trying to mitigate risk. If you fear missing out on cryptocurrencies, you shouldn’t. Imagine a situation where your crypto investment fell to 1/10 of it’s value, due to some unforeseen regulation or world event. Your $1,000 investment becomes $100 and you are going to need to make 10 times that, (1000% return) just to get back to a zero return; this is the problem with volatile investments.
Relax! Diversify! There are other things to invest in!
Relax! Remember, there are other things to invest in. It’s okay to keep some of your investments in direct cryptocurrencies, but diversification will help you sleep a night and, almost certainly, be more profitable in the end. Find something, stock, bond, investment strategy, you are more comfortable with. Understand how it pays off, know your assets well, and watch your investments grow. You want to look to spread your risk, not concentrate it, because it would be a catastrophe if all of a sudden, the value of your investments was zero.
Disclosure: I have no direct crypto currency investments. Turns out I may not be so comfortable with some of the risks.