The 2018 cryptocurrency market dynamic
Opportunity and risk
It’s been less than ten years since cryptocurrency transitioned from academic speculation to the launch of Bitcoin, the first real-world virtual currency. Bitcoin’s explosive increase to 10 times its original value within its few years amazed investors around the globe. Fortunes were made overnight.
You may have begun investing in cryptocurrencies at that time or perhaps a bit later when other cryptocurrency products came to market. Bitcoin, still the biggest player, has had periods of rapid growth followed by market corrections. Cryptocurrencies individually and collectively exhibit greater shifts in value than traditional investments like for stocks. This has worked greatly to the advantage of investors who know when to buy and when to sell.
Some market fluctuations have caught investors off guard–as was the case this month (January 2018) with the widely publicized decline in Bitcoin. Careful observers saw this adjustment coming when China signaled it was about to ban cryptocurrency trading. It’s important to note that this much-publicized Bitcoin price adjustment isn’t deterring investors.
As long as cryptocurrencies are traded, there will be optimists who believe cryptocurrencies will completely replace fiat currencies sometime in the future–while others will continue to express concerns about risks.
Why so popular
Cryptocurrencies appeal to investors for a variety of reasons–
- Some supporters believe virtual currencies will in time supplant fiat currencies and so are investing now before they gain wider use and a further increase in value.
- Others are interested in cryptocurrencies solely for investment purposes and have no interest in whether these currencies are ever on the same level as fiat currencies.
- Most all investors appreciate the fact that cryptocurrency transactions prevent central banks from managing the money supply—thereby eliminating inflation, central oversight, etc.
- Many are fans of blockchain technology which enables cryptocurrency transactions. Another plus for blockchain– transactions are more secure than standard payment systems.
- Others appreciate the anonymity that blockchain networks provide, allowing transactions away from government surveillance. On the downside, this includes criminal activities.
Market Cap to hit $1 trillion
Veteran investors know that investing in cryptocurrency before a price surge can create a lifetime’s worth of gains within months rather than years as with stocks. This is the primary reason cryptocurrencies remaining such an exciting investment.
Peter Smith, CEO of digital wallet platform Blockchain projects that the total market capitalization of cryptocurrencies may hit $1 trillion this year. In addition, total digital currencies are now worth $587B, with Bitcoin still dominating despite this month’s setback. (Those still bullish on Bitcoin believe this cryptocurrency alone could soon be worth $1trillion).
Virtual currencies have had many advocates. In 2013, then-Federal Reserve Chair Ben Bernanke said—
“Virtual currencies may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system.”
That vision has been realized with the emergence of an ecosystem of companies fulfilling those objectives. This has served to further accelerate the expansion and valuation of virtual currencies.
Moving into the new year, investors need to understand the following–
Regardless of what critics say about virtual currencies lacking real value, markets and large institutional investors continue to pour money into them. Richard Branson recently commented that whether Bitcoin remains number one or not isn’t important “there will be other currencies like it that may be even better.”
A few challenges–
Cryptocurrencies that fluctuate widely are disadvantaged by making it difficult for merchants and consumers to determine fair pricing for goods and services.
Price volatility creates another challenge: If a cryptocurrency’s value is rapidly increasing, people are less likely to spend or transact them today, limiting their use as currency.
If major players like the US, China, India, Japan, and South Korea create new ways to facilitate the trading of cryptocurrencies, prices would rise. Conversely, if any of these countries move against a currency or some component of the market, prices would decline.
Expect a variety of new cryptocurrency regulations this year in response to the rising value of Ripple, Ethereum, and Monero. Coins like Ethereum and Monero, are gaining recognition for their practicality and strong investment potential. New regulations would not necessarily hamper their growth.
Time will tell whether Bitcoin continues to dominate. One of its continuing challenges is overcoming the notoriety it gained as the currency of choice for a host of illegal activities, including drug trafficking, illegal weapons procurement, and money laundering. This has attracted the attention of powerful government and regulatory agencies like the SEC, the Financial Crimes Enforcement Network (FinCEN), as well as the Department of Homeland Security (DHS) and FBI.
Since 2013, cryptocurrencies have been defined by the FinCEN as virtual currency exchanges and their administrators as money service businesses. So, cryptocurrencies have been subject to potential government intervention since then, though not regulation in any meaningful sense.
Our new blog is dedicated to providing cryptocurrency investors convenient summaries of important virtual currency developments. We’ll be taking a careful look at issues like security, Initial Coin Offerings (ICOs), national/international regulatory changes, major shifts individual cryptocurrency valuation, Crypto Wallets, and how cryptocurrencies use blockchain technology.