If we ever want legitimacy for digital assets in the world of mainstream finance, we need legitimate financial education.
The cryptocurrency market is still in its infancy, and the
overpowering sense of possibility is strong. The range of attitudes
toward crypto is generally broad, but recent surveys shed light on
certain inclinations one way or another. On one hand, we see beginners
who venture into projects they fail to fully grasp, and on the other, we
see aspirants to crypto investing who question their capability of
getting involved.
At one end of the spectrum are the crypto
dilettantes, where interestingly, understanding and confidence tend to
be inversely correlated. Last year, Dutch bank ING interviewed around 10,500 people in Europe about cryptocurrencies. Of the 13% with the lowest crypto knowledge, 80% demonstrated
high or medium confidence in its future. The cognitive bias these
findings suggest makes for an uncomfortable journey toward crypto mass
adoption. Still, I believe that interest, whether matched by sound
understanding or not, is a step in the right direction.
An earlier survey that polled 1,000 online investors reveals
that 44% of respondents were not trading crypto because they felt they
lacked the proper education. More than half of the women surveyed, in
particular, admitted that a shortfall in knowledge was the biggest
barrier to entry into crypto investing, even though their interest in
doing so matched that of the men. A separate poll conducted by Grayscale last year finds that U.S. investors would be more likely to invest in Bitcoin (BTC) if they were more knowledgeable about the asset, relative to stocks and bonds.
This limitation no longer goes unnoticed in the space. CoinMarketCap’s interim CEO, Carylyne Chan — who recently resigned
— shared she was leaving the cryptocurrency data website with the hope
that it will play a more prominent role in cryptocurrency education.
A lack of financial education
Falling
into the FOMO or being frozen by the FUD is simply questioning your own
judgment. Would either of these externally imposed calls to action or
inaction ever go as viral if people were simply better informed?
The
blame is not entirely on the individual, however. With reputable
publications circulating articles on how you are the only one not
striking it rich on BTC, there’s no wonder people are rushing to create a
wallet. Yet the only acronym you should swear by is DYOR before you
“dip your own resources” into “the next Bitcoin.” This whole narrative
leads to ill-considered investments and propels the search for a quick
crypto buck.
As a result of the low barriers to entry,
inexperienced investors without a financial background venture into the
crypto space in expectation of instant returns. It is a legit strategy
to reap profits off of day trading, but it is unfair and short-sighted
to make the entire industry about that. How do we expect traditional
financiers and those coveted “billionaire’s approach” proponents to take
digital assets seriously, given that for most crypto investors, long
term is a week?
The perceived dichotomy between digital and
traditional finance can be debunked by showing potential investors that
basic financial principles are a stepping stone for successful crypto
involvement and that a misunderstanding about an ordinary process in
corporate finance can put all players involved at a loss.
One
feature that occurs in both types of finance is dividends payments. This
year, many companies globally tried to distribute dividends against a
backdrop of bankruptcy filings and record unemployment in the markets.
Those with a solid financial understanding would be aware that while the
control over dividends policies falls entirely under the company
distributing them, the share/token price is entirely market-driven, and
crypto markets are notoriously more volatile. Dividend payments impact
price: Typically, a rise is expected on the announcement date and a
decline by a similar amount on the ex-dividend date.
Understanding
these principles when expecting dividends from crypto companies means
users will be more aware of their movements during these times, whether
they’re rushing to buy more tokens, which can inadvertently cause the
price to spike, or selling their tokens once the dividend amount is
revealed.
Mainstream companies face the same trials as crypto companies in this regard. According to a report
by Janus Henderson, a fund manager that tracks dividends globally,
there have been cuts in dividends payouts in every region except North
America. Mainstream financial companies failed to meet shareholders’
expectations, and the worry is that by the time these companies can
afford to pay dividends — in, say, 2021 — they will have already lost
the trust of their investors.
For blockchain companies with
sustainable business models, the disconnect with finance concepts that
do-it-yourself investors from the still-niche crypto community seem to
display is discouraging to see. Being the sovereign of your assets comes
with a set of responsibilities, and we are all learning together how to
overcome the challenging parts of this industry for a stronger future.
Do digital assets make traditional finance nervous?
Apparently not when it comes to U.S. and European institutional investors. New research from Fidelity Digital Assets shows
that 36% of the nearly 800 institutional investors polled are already
invested in digital assets. A whopping near 80% of them find something
appealing about the asset class, be it the innovative technology or the
high potential upside. The legitimacy of crypto in traditional financial
markets will be much easier to achieve if we see more and more examples
of backers that are in it for the long run.
As well as seeing
examples, believing in the future of a new technology does not always
have to be met by a resounding yes or no. That’s precisely why you need
education — to see the nuance, critically. The economic crisis stemming
from the COVID-19 pandemic made everyone look to places other than just
central-bank-regulated currencies, and a modern gold rush ensued,
followed by very volatile months for Bitcoin.
Most traditional
investors are already backing BTC and altcoins, but no one dumps all
their billions of dollars into a single asset class. Michael Novogratz,
veteran hedge fund manager turned crypto crusader, put it quite wisely
for those of us who were confused:
“My
sense is that Bitcoin way outperforms gold, but I would tell people to
have a lot less Bitcoin than they have gold, just because of the
volatility.”
Novogratz is advising digital asset novices
to put no more than 2% of their funds into BTC, saying that holdings
beyond that threshold should be reserved for professionals.
Other
firms such as Fidelity have shown the seriousness with which they are
taking Bitcoin as an investable asset, as well. Fidelity recently filed paperwork
with the U.S. Securities and Exchange Commission informing the
regulator of a new fund dedicated to Bitcoin, and it has been an example
of a traditional fund that sees the potential of digital asset
investment in the long run.
In the end, despite these limitations,
it is up to the whole community — businesses and individual investors
alike, but also regulators and legislators — to make sure we know enough
to invest well and to invest safely.
source link : https://cointelegraph.com/news/financial-literacy-will-make-the-digital-asset-industry-sustainable-for-the-future
