South Korea has recently called for New Zealand to lead the regulation of cryptocurrencies. Governments can try to regulate, but the nature of cryptocurrencies means it’s not likely to work.
One of the most attractive features of bitcoin is that it isn’t regulated by any government. That doesn’t mean there aren’t problems with cryptocurrencies though. People are getting burnt, and it’s possible that there’s only one way to stop the hurt: education.
Cryptocurrencies are a technological marvel that provide an alternative to banks, and resistance and regulation is probably futile.
For many, cryptocurrencies offer a new way of thinking and new opportunities. However, to fully realise the opportunities, the way that people think about cryptocurrencies needs to change, and that can only be done through education.
Ideally cryptocurrencies should be viewed as a form of currency that can make cross-border trade safe and easy. Treating it as an investment or an asset is speculative and dangerous.
But why are cryptocurrencies dangerous as an investment? Simple. Not a lot of people understand how they work and buy into them because of greed or the fear of missing out.
We hear from many mom and pop investors, so we know that Fear of Missing Out is very strong in the Kiwi psyche. We tell people that nobody should ever invest in something they don’t understand. A good investment is something you understand.
Property investment remains a popular form of investment because of its simplicity. Risks and rewards are easily understandable and don’t require people to do too much extra research in order to invest, as they should do with shares or stocks (why these are not as popular as property).
How do you know you’re getting a fair return on your risk when you don’t understand your risk? Cryptocurrencies are going to be around awhile – they’re resilient because they’re useful. They’re not a fad, and I am concerned that Kiwi investors will end up being lured into risks they don’t understand for rewards they can’t comprehend.
It is not uncommon for investors to hear stories from friends and families. Fear of Missing Out quickly sets in and they make mistakes – we need better education around finance generally, but particularly in cryptocurrencies.
Nobody knows much about investments in general, and cryptocurrencies are no exception. Unfortunately, no one wants to admit to knowing nothing, and that’s when things go wrong.
Most investments, such as our peer-to-peer mortgage lending product, will have providers behind them who are able to provide education and information. Cryptocurrencies don’t have identifiable providers to provide that education.
That’s why New Zealand should lead the way with cryptocurrencies. Not by regulating, but by educating.