Technological development and advancement have yielded various innovations, particularly in the financial sector. One such financial innovation that has emerged is cryptocurrency. Though a means of payment, cryptocurrency entails various pros and cons, high risk and volatility, with few investors intrepid enough to invest in crypto assets.
Inevitably, cryptocurrencies have continued to expand in terms of total and types. As of November 2022, a total of 93,581 types of cryptocurrencies were available as investment instruments.
The 10 largest cryptocurrencies in terms of market cap are Bitcoin (BTC), Ethereum (ETH), Thether (USDT), BNB, Binance USD (USDC), XRP, Cardano (ADA) and Dogecoin (DOGE). Bitcoin, for example, recorded a market cap of USD324.52 billion on 12th November 2022 at 10:10 WIB, followed by Ethereum with a market cap of USD156.34 billion.
In addition to conventional cryptocurrency, Islamic cryptocurrencies have also emerged backed by gold assets, such as Onegram and X8X (Rizvi & Ali, 2022).
Meera (2018) argued that cryptocurrency is digital money created using sophisticated cryptographic technology. In addition, cryptocurrency can guarantee the security of chronological transaction records.
The emergence of cryptocurrency has a number of pros and cons. One advantage of cryptocurrency is the fast transfer speeds and massive investment profits. The speed and price of cryptocurrency are very promising. For example, the price of Ethereum in December 2019 stood at USD129 before skyrocketing to USD4,600 in November 2021. Such massive gains, therefore, were achievable to investors.
Rizvi dan Ali (2022) also found that investors in Indonesia invested in cryptocurrency to reduce equity risk during the pandemic. Notwithstanding, cryptocurrency is not without risk. Cryptocurrencies are subject to high fluctuations in value and are regularly used for money laundering and terrorist financing. In addition, cryptocurrencies are typically not guaranteed by tangible assets.
From an Islamic perspective, cryptocurrencies, such as Bitcoin, are typically considered to contain elements of gambling (maysir) and uncertainty (gharar) (Meera, 2018). For example, the price of Bitcoin in April 2022 peaked at USD60,000 before falling precipitously to USD16,860 on 12th November 2022 at 10:18 WIB.
Despite the advantages, investing in cryptocurrency is synonymous with a double-edged sword. Such investments can generate massive profits but, in an instant, can also incur massive losses.
Rollercoaster movements necessitate strong mental fortitude when investing in cryptocurrency. This is an important consideration for investors, particularly young investors.
According to cointelegraph.com, the fear of missing out (FOMO) is a stark psychological effect that can emerge from cryptocurrency investment. Various media around the world have reported mental health problems manifesting in young cryptocurrency investors, ranging from depression to suicidal thoughts.
Todayonline.com reported that an investor lost USD40,000, or approximately 90% of total investment, and one-third of his personal savings when the price of Lunar stablecoin crashed. The price of Lunar collapsed from USD119 to just USD1. Another investor lost USD2.3 million, leading to severe depression and suicidal tendencies. Meanwhile, another investor lost Rp4.3 trillion, with the ensuing depression feeling like insanity.
A number of prominent psychiatrists have spoken up on this issue. A therapist team from New York that treats crypto addiction, Strenlicht and Lin, acknowledged a 40% increase in demand for therapy services from their clients worldwide.
Broadly speaking, the emergence of cryptocurrencies is akin to a double-edged sword. In addition to massive potential profits, severe price fluctuations can adversely impact the psychology of investors, especially when investment funds are lost.
Consequently, cryptocurrency investment demands caution, strong mental fortitude as well as comprehensive understanding of the types of investments and inherent risks. Do not forget, if deciding to invest in crypto assets, use cryptocurrency investment service providers that are registered with official bodies.
References
Choo, D., & Lim, K. (2022). Some young investors get burnt by cryptocurrency crash, regret recklessness; experts raise depression fears. Accessed via https://www.todayonline.com/singapore/some-young-investors-get-burnt-cryptocurrency-crash-regret-recklessness-experts-raise-depression-fears-1900576 pada 03 Nopember 2022
Meera, A.K.M. (2018). Cryptocurrencies from islamic perspective: The case of bitcoin. Bulletin of Monetary Economics and Banking, 20(4), 475-492.
Nurhadi, M. (2022). Kehilangan aset kripto senilai Rp4,3 triliun, pria ini depresi berat hingga merasa gila. Accessed via https://www.suara.com/bisnis/2021/12/22/130825/kehilangan-aset-kripto-senilai-rp43-triliun-pria-ini-depresi-berat-hingga-merasa-gila on 03 November 2022.
Perez, E. (2022). Mental health and crypto: How does volatility effect well-being? Accessed via https://cointelegraph.com/news/mental-health-and-crypto-how-does-volatility-effect-well-being on 03 November 2022.
Rizvi, S.A.R., & Ali, M. (2022). Do islamic cryptocurrencies provide diversification opportunities to Indonesian islamic investors? Journal of Islamic Monetary Economics and Finance, 8(3), 441-454.
Sharma, R. (2022). 'Crypto ruined my life': The mental health crisis hitting bitcoin investors. Accessed via https://www.vice.com/en/article/akvn8z/crypto-bad-for-mental-health on 03 November 2022.
Verma, P. (2022). Insomnia, addiction, and depression: The dark side of life trading crypto. Accessed via https://www.washingtonpost.com/technology/2022/04/29/crypto-addiction/ on 03 November 2022.
