You might have seen an advertisement in one of the leading newspapers in India inviting the Indian Public to invest in an ICO – Initial Coin Offering by Inmusik.
You must be wondering now whether you should invest in the Inmusik ICO?
Is it safe to invest in the Inmusik ICO?
An ICO is the first offer for sale of a Cryptocurrency (also known as Virtual Currency). The Inmusik’s cryptocurrency is known as ‘Sound Coin’.
In this post we will outline what a cryptocurrency is and discuss whether you, being an Indian citizen, should invest in the Inmusik’s Initial Coin Offering (ICO).
What is a Cryptocurrency?
Cryptocurrency is a digital currency (virtual currency) that is encrypted to make it secure against counterfeiting or loss. Bitcoin is a prominent example of a cryptocurrency.
As of today, all cryptocurrencies in circulation are created and operated by private entities. The most striking characteristics of cryptocurrencies lies in the fact that they operate without the regulation of a Central Bank.
In other words, these are private currencies the value of which is not guaranteed by any Government Authority in any country.
Risks Associated with Cryptocurrencies:
In an earlier post I had shared with my readers why one should never invest in Cryptocurrencies.
In the post, I had observed that Cryptocurrencies like Bitcoins are not currencies as they claim to be.
Private Cryptocurrencies are not currencies…
Before presenting any case against cryptocurrencies, we must look at the definition of Money and Currency.
Money is something which is generally accepted as a medium of exchange and acts both as a measure and a store of value.
Currency is money in circulation which is issued and guaranteed by the Government.
One of the most fundamental characteristics of currencies is the fact that is value is guaranteed by a Government Authority. It is this guarantee that lends currencies its value. Without this guarantee a hundred-dollar bill would have no more value than a piece of blank paper.
Cryptocurrencies in their present form are issued and operated by private entities and hence cannot be terms as currencies as there is no government guarantee underlying them.
They operate in an unregulated environment.
Private Cryptocurrencies are not ‘assets’ either….
Since the value of private cryptocurrencies are not guaranteed by the government, it can never be a store of value. Its value would fluctuate just like the value of any other commodity based on the principles of demand and supply. When demand increases, its value increases. When demand falls, its value falls.
Does that make cryptocurrencies assets?
The answer is NO.
This is because any asset like gold, silver, land, shares etc have an intrinsic value. Assets generate income. Gold and Silver are not just precious metals, they have industrial uses as well. Land as we all know is a productive asset. A share represents fractional ownership of an entity that generates cash through the sale of products or services.
Cryptocurrencies are computer codes with no intrinsic value of their own.
In short, cryptocurrencies have no value. Their prices are driven solely by speculation.
Should you invest in Inmusik’s ICO?
In simple words my answer would be NO.
I will discuss why.
The RBI Bar on dealings in Cryptocurrency (a.k.a Virtual Currency):
The Reserve Bank of India had vide Notification No. RBI/2017- 18/154 dated 06.04.2018, has bared all Financial Institutions regulated by it from dealing in Virtual Currencies (VCs) or providing services for facilitating any person or entity in dealing with or settling VCs.
As per the Notification, all financial institutions (including banks) under the regulation of the Reserve Bank of India cannot:
- Deal in Virtual Currencies
- Provide services like maintaining accounts of or registering, trading, settling, clearing of Virtual Currencies.
- Provide Loans against Virtual Currencies.
- Accept Virtual Currencies as collateral for loans extended by such financial institutions
- Open accounts of exchanges dealing with VCs
- Transfer / Receipt of money in accounts relating to purchase/ sale of VCs
Note that the last point above holds great significance for you. Since “the transfer/receipt of money in accounts relating to purchase/ sale of VCs” has been barred by the RBI, it effectively means that you cannot transfer/receive money from/to your bank account (including debit/credit cards) to buy/sell Virtual Currencies.
In other words, if you invest in the Inmusik’s ICO your money is liable to be Frozen. (Don’t be misled by the advertisement)
Protection to U.S Citizens from any unregulated issue of Securities outside of the U.S: Note that pursuant to the provisions of Regulation S of the U.S. Securities Act of 1933, Inmusik cannot offer the ICO for sale to U.S citizens. This provides protection to U.S citizens against such unregulated issue of securities.
The following are some of the other risks in Investing in the Initial Coin Offering:
- Since the Cryptocurrency is privately operated, its value is not guaranteed by any Government Authority. This would expose it to wild swing in prices depending upon the actions of the speculators. It’s a sentiment’s game any negative sentiment or news would send the prices crashing, exposing you to great losses.
2. Since the cryptocurrency is a computer code there always a risk of loss due to a server failure or their systems might be hacked into.
3. The securities market in India are regulated by the SEBI. The ICO’s on the other hand operate in an unregulated environment which exposes you to the risk of loss due to fraud. Moreover, where and whom do you appeal against in case of a fraud?
4.You cannot buy anything in exchange of the cryptocurrency.
5. It has no intrinsic value.
Still not convinced?
Ask yourself if I were to start a new currency tomorrow would you buy it from me?
Hope you have your answer…
Stay safe, stay away from cryptocurrencies.