Rarely has the world been more divided than over the Game of Thrones finale and investment in cryptocurrencies. Some swear by it and then some swear at people who swear by it. Given that Elon Musk’s sneeze can decide the rate of Bitcoin tomorrow, why invest in an asset class that is prone to extraordinarily high levels of volatility?

‘Crypto is easy’

“I can start investing sitting in the washroom in the next 10 minutes,” says DR who invested about $200 a little over a year ago. “All I have to do is go online, watch a few YouTube videos and decide what to buy,” he explains adding that crypto works well with tech-savvy people who don’t like forms or going to places to open an account.

“Crypto is very easy to invest. Just install a small app and you are ready to go,” says ANC that invested about $2,500 over a year. “I have not invested more than 10 coins at any point. At the moment I am carrying four to five. Invest the money you are happy to lose,” he says, adding that he believes crypto appeals primarily to millennials.

A roller coaster ride

“I invested $500 in a coin called Solana when it at $26 in early 2021,” says an investor. “It rose to $54, came down to $26 and eventually reached high as $260,” he says explaining the volatility that is inherent to investing in cryptocurrencies.

Some liken it to a bubble and Ponzi scheme while others view it as a hedge against inflation that can give big payoffs

After the May crash, he lost about 70 per cent of his investment of $6,000. Eventually, the value of the coins rose and he was able to recoup his investment and then make some profit.

“I have two accounts: one that I plan to hold for the next three to four years and the other is for daily trading,” says FA who has invested $1,200 over 10 coins. “We are all stuck. When I purchases Bitcoin, it was at an all-time high,” he says admitting that he is yet to make a profit.

“I was never interested in investing in the stock exchange. A friend was trading in crypto, he told me about it, I had funds in hand and it was easy so I invested. Secondly, I can use my own research to invest. I watch YouTube videos, follow accounts on Twitter and read articles on websites,” he narrates his crypto journey. “I invested $100 Waqar Zaqar’s TenUp, but right now its value is in the low $80s,” he laughs.

“While Bitcoin is king, it is too expensive to purchase. Better to invest in coins that we can afford that have the potential to give returns many times over,” says another investor, while giving the example of Bloktopia — a cryptocurrency that is being sold for about 2 cents. “The team behind a cryptocurrency is what matter. While Blok has almost no value right now, it can payout many times over.”

A lot of variables

“You can’t invest in PKR,” explains DR. “First, you have to transfer to someone in rupees and buy a cryptocurrency — USDP (USD partners) is the one most commonly used. The rate you get depends on the exchange rate at that time. Usually, USDP is Rs10-12 more than the current dollar value.

“The amount of USDP purchased also makes a difference. For example, if I want USDP 1,000, I may get a rate of Rs184 but if I want to buy USDP10, I may get a rate of Rs193. The smaller the amount of purchase, the more expensive it is.”

Some investors maintain spreadsheets in which they record what was bought, at what rate in terms of USDP, the exchange rate at that time, and the current value in rupee to assess where they stand in terms of profitability. A portfolio has a different value every day given all the variables with returns fluctuating daily.

“I started investing in shares in 2011 but was unable to earn a single penny,” says CB while sprouting expletives against the Pakistan Stock Exchange (PSX). “I bought blue-chip shares that lost 50-60 pc of their value that they never recovered. Eventually, after successive losses, I opted out of PSX. In the last decade, I have not seen anyone truly profit from investing in shares in Pakistan because it is controlled by a few big wigs and a small investor can never win against them,” he says in answer to why not invest in the PSX instead.

Disillusionment with the stock exchange and the ease of opening an account are the main reasons cited by investors for opting for crypto. Some liken it to a bubble and Ponzi scheme while others view it as a hedge against inflation that can give big payoffs.

Pakistan Fintech Association supports State Bank Governor Reza Baqir’s stance that there are more risks than benefits. In a statement, it says: “No association or industry should think it is above and beyond the economic sovereignty and prosperity of Pakistan. Transnational ambitions for short term gains in speculation and fluff valuations will eventually dent the image of the fintech industry.

“Our ambition is to grow in Pakistan, we live here and Pakistan will be written on our tombstones. Massive capital gains that sit outside of Pakistan but obtained from work in Pakistan is treacherous and such crypto fads are an easy source for pump and dump cowboys.”

According to Chainalysis’s October 2021 report, Pakistan is among the top three countries in the 2021 Global Crypto Adoption Index. At a whopping 711pc, Pakistan has experienced the most growth in terms of cryptocurrency value received. The general perception is to jump on this groovy train where fortunes can be made almost overnight.

Talking to small individual investors, however, a different picture emerges. In the time of raging inflation and eroding currency value, people are looking for avenues where small amounts can be invested easily and be protected. Any instrument that can promise to do so, free from taxation, appears to be a panacea for financial troubles. And hence the crypto investments continue.

Published in Dawn, The Business and Finance Weekly, January 21st, 2022