Financial security through savings and investments in cryptocurrency

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RESEARCH PROJECT

Financial security through savings and investments in cryptocurrency

Keshubayeva Samira, marketing

Rakhimbayeva Alina, marketing

Gladkikh Yana, marketing

Kudasbek Zere, marketing

Ryskalieva Madina, marketing

University of International Business

Almaty, 2023

Financial security through savings and investments in cryptocurrency

INTRODUCTION

     Financial well-being is an important part of a person's personal well-being.  Financial well-being is a state in which a person manages his cash flows, knows how much he earns and spends, fulfills his financial obligations, experiences financial shocks without loss of quality of life, and also has financial freedom and is confident in his financial future.  Knowing how to manage your finances is one of the most useful knowledge in the life of a modern person.

     The American model of financial behavior is notable for its simplicity and reliability: the average married couple from the moment the child is born plans his future, saves money for his higher education.  But this is not common in our country: newlyweds often take out loans for a wedding, and parents get into debt to provide their child with a university education. And knowledge about such financial instruments as savings and investments can simplify these processes, reducing the financial burden.

     Knowing the basics of saving and investing and following a sensible plan can help a person be financially secure for years to come and enjoy the benefits of managing their money.  There are many ways to save and invest money.  In our study, we will study the savings and investment in cryptocurrency.

       The purpose of this study is to study the theoretical foundations of savings, investments, cryptocurrencies and ways to form a person's financial security with the help of savings and investments in cryptocurrencies. As a result, we formed our research questions:

• How do induviduals invest in cryptocurrencies?

• What are the risks in investing money in cryptocurrency? Is cryptocurrency a useful tool for creating human financial security?

• What is the best cryptocurrency to invest in?

• Do Kazakhstanis invest in cryptocurrency?

THEORETICAL FRAMEWORK

What are Savings and Investment?

    Savings and investments are excellent financial instruments for maintaining a person's financial well-being. People must not only have financial knowledge, but also be able to confidently apply this knowledge in making financial decision (Huston 2010). First, we will analyse the concepts of savings and investment.

     According to the definition of the Organisation for Economic Co-operation and Development (OECD), saving is positive financial behaviour that leads to the financial well-being of individuals and households (OECD, 2016). Long-term savings enable regular consumption throughout people's lives, while short-term savings help people cover expenses and protect people's purchasing power in the event of income shocks (Mahdzan and Tabiani 2013).

  The term "investment" comes from the word invest, which in Latin means "to invest". According to V.G. Zolotogorov, an investment is a long-term investment of funds, intellectual values domestically or abroad in various industries with the aim of developing production, entrepreneurship, making a profit or other end results (2014). The choice of where and how to invest depends on different provisions, on the amount of available funds, on the status, as well as on forecasts for a particular investment incentive.

What are Cryptocurrencies?

     Cryptocurrency is another asset. Every year more and more people are becoming interested in cryptocurrencies and investing money in them. The term cryptocurrency consists of a combination of the words cryptography and currency. Cryptography, in turn, implies the protection of funds from theft, which on the one hand makes cryptocurrency a safe investment option. Freedom from restrictions is one of the advantages of cryptocurrency. Due to the anonymity of transactions, the cryptocurrency does not fall under the influence of centralized payment services . That is, transactions using cryptocurrencies can be made without hindrance, and the transaction fee is significantly less than the commission for an international money transfer. To date, the security of cryptocurrencies as an asset is an urgent issue for many investors.

LITERATURE REVIEW    

Investment of Individuals in Cryptocurrency

     Despite the fact that cryptocurrencies have been around for a little over 10 years, keeping money in cryptocurrency and investing in cryptocurrencies is becoming more and more popular (Frankenfield J., 2023). Money and investment hunters will always pay attention to cryptocurrencies.  Unlike traditional money, which primarily serves as an exchange of value, cryptocurrencies are a store of value.  As a store of value, cryptos can be traded like stocks, and people who make smart investments in them earn a lot of money from it.

     In their research, C. Magnusson and T. Stenberg found that among individuals, both men and women tend to invest in cryptocurrencies in order to transfer money and make a profit (2022).  However, men are more active cryptocurrency investors than women.  According to statistics in a study by Lammer D. and Hanspel T., 90% of the cryptocurrency sample are men. This finding was consistent with Pijpers et al. (2019), who found that men are more inclined towards online banking and investing in cryptocurrencies than women.

     The main reasons for investing in cryptocurrency were called innovative activity, as well as the search for new investment opportunities that will bring more profit than others (Magnusson Ch. & Stenberg T., 2022.). When a person buys a cryptocurrency as an investment, their intention is not to consume it, but to use it for profit. The main purpose of investment in cryptocurrency is to make a profit and increase in value over time.

What are the risks in investing in cryptocurrency?

     The cryptocurrency industry has grown quickly compared to other financial markets since the introduction of the first cryptocurrency, Bitcoin, in 2009. Several investors are drawn to cryptocurrencies due to their extreme volatility relative to fiat currency and mistrust of the established financial system. Investors anticipate huge profits because to the extreme volatility of bitcoin exchange rates, yet interest in cryptocurrencies is frequently coupled by a lack of financial knowledge. Many are unaware of all the hazards linked with this instrument since they are expecting large profits from it. Jiménez, Mora-Valencia, & Perote (2022), claimed that frequently, the variation in the value of cryptocurrencies over months, weeks, and seven days is hundreds of percent.  There are quite a few good risk assessment methods (Magnusson Ch. & Stenberg T., 2022). Accordingly, it becomes even more difficult to choose a better one for your situation, which significantly increases the potential occurrence of certain situations leading to losses. Security vulnerabilities, such as environmental instability, cybercriminals, aka hackers, also increase the chance of potential threats leading to investment losses (Magnusson Ch. & Stenberg T., 2022). And since the cryptocurrency is not supported by the state, it is extremely difficult to predict the rise or fall of the cryptocurrency based on this. A common topic of discussion is market speculation in addition to the significant volatility of cryptocurrencies. Huynh (2021; 2022) found that outside information may easily alter the price of bitcoin. One of the factors contributing to the significant volatility of the cryptocurrency is the lack of government regulation. Cryptocurrencies are decentralized and not fully regulated by state-level financial agencies. Many cryptocurrency participants buy it directly without having a clear strategy (Magnusson Ch. & Stenberg T., 2022). Having a clear investment strategy would significantly reduce the chances of realizing the threats associated with investment losses. And since experienced participants with more than 3 years of experience (Magnusson Ch. & Stenberg T., 2022) were distinguished from newcomers by the fact that they simply invested more, it becomes even more clear that without a good investment strategy, competent development and income in the field of cryptocurrencies becomes very difficult.