Is cryptocurrency a worthy investment?

There's lots of excitement about the potential gains to be made from investing in cryptocurrency, but is it a safe investment? Can cryptocurrencies turn you into an overnight millionaire?

Interest in cryptocurrency is raging high now that big tech companies such as Facebook and Microsoft are investing in the Metaverse, an world accessible through digital devices. In many ways, the Metaverse is an advanced form of virtual reality.

As with the physical world, the Metaverse contains property such as land, buildings, cars, paintings and music. Property in the Metaverse, known as Non-Fungible Tokens (NFTs), is bought and sold using cryptocurrencies. Last November, a yacht in the Metaverse was sold for $650,000 (Sh73,734,050) in cryptocurrency.

Most people call cryptocurrency Bitcoin, but Bitcoin is just one of several thousand types of cryptocurrency in circulation. Others include Ethereum, Binance, Terra, Dogecoin and Avalance. With growing interest in the Metaverse, cryptocurrency is recording very attractive returns. The World Economic Forum reports that the market value of cryptocurrency grew by 187.5 per cent in 2021. Bitcoin grew by a modest 59.8 per cent, while Terra recorded returns of 12,000 per cent.

Theoretically, if you invested Sh1,000 in Terra in 2020, your cryptocurrency holding would be worth Sh120,000 in December 2021. In reality, most cryptocurrencies record a low increase in value. There's another problem: converting digital currency into real money is difficult because most banks do not accept it.

In Kenya, the Central Bank (CBK) forbids banks from dealing with cryptocurrency. In a statement, CBK warns that cryptocurrencies are not recognised as money. The law does not protect users in case the virtual currency fails. "The value of virtual [digital] currencies is speculative in nature," reads part of CBK's statement, "this may result in high volatility (unpredictable changes) in the value of virtual currencies, thus exposing users to losses."

The lack of legal protection is the biggest weakness of cryptocurrency. A notorious case emerged in December 2018, when a 30-year-old Canadian man suddenly died with the password of a cryptocurrency exchange. Gerald Cotten was the only person who had the password to QuadrigaCX. Consequently, 115,000 people lost access to cryptocurrencies worth $137 million (Sh15 billion).

On January 26, the founder and head of a cryptocurrency exchange, Cryptsy, was indicted in Florida for the theft of millions of dollars from customer accounts. According to the indictment, Paul Vernon took the money from his customer's Cryptsy wallets, deposited the funds in his cryptocurrency wallet and then transferred the money into his bank account. The alleged theft happened between 2013 and 2015.

Despite the risks, Kenyans are investing hard in cryptocurrency. In August 2021, Kenya was listed as the world's top country in person-to-person cryptocurrency trading. Togo came second, while Tanzania was number four. Chainalysis, the analysts who did the survey, reported that person to person trading is popular in Kenya because there aren't any centralised cryptocurrency exchanges in the country.

Is cryptocurrency a worthy investment? Like any other business venture, get as much information as possible before making a decision. Don't invest in something you don't understand. Most importantly, don't put all your savings into it. Diversity is key to success in investment.