As Bitcoin passed through the $10,000 barrier this week, then $11,500 within hours, before going back down to $9,300 just as quickly, some market commentators have been asking if putting money into cryptocurrencies is more like gambling than investing.
At first glance, gambling and investing do share some similar characteristics.
If we consider gambling to be “the act of placing money on events with uncertain outcomes in hope of making a gain” then it is almost identical to the idea of investing in stocks. Investing in equities, particularly small caps for example, is a highly risky activity as the ultimate outcome is not known with any certainty – just like putting £100 on Mrs Boothroyd’s Holiday Dancer to win the 2:30 at Doncaster.
As anyone who has had a successful football accumulator come through or put money into Bitcoin in the past few years will know, both gambling and investing can make you rich. They can also make you poor, with the complete loss of capital possible in both cases. This is obviously much more likely in gambling which is a binary event, you either win or lose, not like with financial assets which still have value even if they go down in price.
What we believe the media should really be referring to when talking about gambling in reference to cryptocurrencies is “speculation” – in other words, people putting money into a fast moving asset in order to make some quick gains. This is in fact the complete opposite to “investing”, where the typical intention is to acquire assets with the intention of making long-term gains.
The current movements in the Bitcoin price are largely down to speculation in our view, with investors putting their money into the cryptocurrency in the hope that they will be able to derive value from selling to someone else at a higher price. This situation is commonly known as the “greater fool” theory and not one which is particularly good at improving long-term wealth as you are relying on the asset to go up in value. In the interim, cryptocurrency prices may go down and with them not delivering any form of interest or dividends no income will be earned.
Crowd for Angels has recently launched its own form of cryptocurrency (or “token”) which aims to reduce the wider risks associated with investing in cryptocurrencies. We are looking to raise up to £50 million via issuing 5 year crowd bonds which will pay interest of 3% per annum. Alongside the bonds, for every £1 invested we will be issuing, as a reward, up to 99 “Angel” tokens.
Crowd for Angels expects to have the tokens traded on external exchanges and our internal exchange following their issue. The value of the token can be used internally towards an investment on the Crowd for Angels platform or exchanged subject to demand. Both routes provide a way to potentially realise value from the tokens. And being issued for free to investors there is no potential for capital loss on the tokens, unlike with Bitcoin, only the potential for upside.
Launched in January 2014, Crowd for Angels is an FCA authorised crowdfunding platform. We have developed a sophisticated platform and helped companies connect with thousands of investors to raise the funds they need for expansion via both debt and equity funding. With a bond raise of £50 million we expect to see significant growth over the next five years, with the total annual funds raised forecast to rise to £1 billion by 2022, further supporting the growth of UK SMEs.
For more information on the bond issue and ICO visit https://crowdforangels.com/company/plc/Crowd-for-Angels-UK-Limited-1031
Investing in small public listed or private companies involves risks, including illiquidity, lack of dividends, loss of investment and dilution, and it should be done only as part of a diversified portfolio. Investing in debt pitches through Crowd for Angels (UK) Limited involves lending to companies and therefore your capital is at risk and interest payments are not guaranteed if the borrower defaults. Past performance is not necessarily a guide to future performance and forecasts are not a reliable indicator of future results.
Crowd for Angels is targeted exclusively at investors who are sufficiently sophisticated to understand these risks and make their own Investment Decisions. You will only be able to invest via Crowd for Angels once you are authorised.
Please visit crowdforangels.com/risk-warning to read the full Risk Warning.
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number: 176508). Investments made in companies listed on the Crowd for Angels platform are not
covered by the Financial Services Compensation Scheme (FSCS).
The availability of any tax relief depends on the individual circumstances of each investor and of the
company concerned, and may be subject to change in the future. If you are in any doubt about the
availability of any tax reliefs, or the tax treatment of your investment, you should obtain independent
financial advice before proceeding with your investment.
The prices of virtual goods and products, like real goods and products, constantly fluctuate over time.
Any currency, virtual or otherwise, could be subject to large swings in value and at any time might
become worthless. As such, the value of your holding may increase or decrease over time or even go to
Cryptocurrencies, tokens and other digital currencies are not regulated by the Financial Conduct
Authority and therefore do not offer recourse to the Financial Ombudsman Service or the Financial
Services Compensation Scheme.