Investing in the oft-volatile world of cryptocurrencies
is especially risky for students playing with borrowed money because they are
chasing the promise of quick wins in a rapidly fluctuating market, pointed out
Adam Button, chief currency analyst and managing editor of Canadian currency
trading analysis firm ForexLive.
“It just ran out of gas,” said Button, referring to a note from Barclays analyst Joseph Abate earlier
this month, which argued that cryptocurrencies behave like the flu.
Those susceptible to the hype may become “infected” and
buy, the note added. They then become candidates for “recovery” by selling off
their cryptocurrency assets and becoming “immune.”
As the recovering and immune percentage of the population
grows, the number of potential hosts falls, said the Barclays note, eventually
reaching an “immunity threshold” as “infections” drop substantially. It added
that surveys show the susceptible population for Bitcoin is now relatively
Bitcoin’s prices have certainly plummeted, falling from a
high of around $20,000 in December to just over $8,000 at the time of this
writing. Ethereum fell from highs of around $1,400 to $500. Ripple, too, is
down from highs in early January. Many major cryptocurrencies that were trading
at the start of this year have either lost value or, at best, not increased.
Likening cryptocurrency to a virus misses an important
point though; there is always another variant around the corner. As a thousand initial
coin offerings (ICOs) flourish, unsophisticated speculators have an endless
stream of investment opportunities.
The young are often the most unsophisticated of all,
“Young people are at an intersection of overconfidence
and unsophistication,” he said. “As people get older and more jaded, it
A poll of
2,000 people in Britain by the London Block Exchange last year seems to bear
that out. Five percent of those aged under 35 already have cash invested in
cryptocurrency, it said, adding that one in three millennials will invest in
cryptocurrency this year. A quarter of them said that they regretted not buying
into a cryptocurrency earlier after watching bitcoin’s prices spike late last
Conversely, 57 percent of those aged over 55 said that
they would not buy cryptocurrencies, according to the research, released at the
height of bitcoin’s pricing frenzy in December.
Button argues that cryptocurrencies are among the most
dangerous for unsophisticated investors because their volatility leads to
emotional investing. Not everyone has the stamina to “HODL.”
“It exposes our psychological weaknesses, our fear and
greed,” he said. “It's very difficult to stick to the plan, and the idea might
be to buy and hold for a month or a year, but it only takes a moment of
weakness to panic and get out.”
As a highly volatile asset, cryptocurrencies should only
represent a small part of anyone’s portfolio, said Button, adding that students
investing a limited amount of borrowed money are already worth less than zero.
This won’t be money that they can afford to lose.
“There could be suicides in those numbers,” he said. “For
some young people, losing $3,000 is a devastating loss. It could lead to them
leaving school or whatever.”
At the same time, telling students not to gamble is like
telling them not to drink or do drugs, he added. In an ideal world, students
wouldn’t gamble their meager borrowed living expenses at all. Those determined
to do so should be warned of the dangers and encouraged to start small and
treat it as a learning experience, he concluded.