Leading cryptocurrency Bitcoin has been experiencing quite the extended hangover this year. After steadily climbing through the first three quarters of 2017 from a low of $776 in January, it partied hard at the close of the year, spiking from $4,395 at the start of the fourth quarter to a high of $19,343 in December.
Since then, it’s been a volatile slide down to about $6,500, as of mid August.
Remind me—what’s the the big deal with cryptocurrency?
It’s a computer-generated currency, hidden in the digital world using cryptography–essentially, lines of code with a dollar value. You can uncover it by solving complex algorithms to verify crypto transactions, which leads to the release of new coins. It may sound like some kind of video game, but it’s a real investment.
So far, Bitcoin has been king of all cryptocurrencies, of which there are more than 1,000 different types. The rest are typically grouped together and called “altcoins,” though there are some stand-out names you may have heard, like Ethereum, Ripple’s XRP and Bitcoin Cash.
Has Bitcoin been dethroned?
It’s still hanging on. The entire crypto universe has had a rough year, with its market cap plummeting about 64 percent, as of mid August, according to crypto data research firm CoinMarketCap. And even as many altcoins come on the scene offering, say, lower price points and easier mining opportunities, Bitcoin still commands more than half of the crypto market share.
So is the crypto bubble popping?
Well, it’s fair to say things haven’t been so hot for the high-risk, high-reward investments. But there are a few developments in 2018 that have added some more stability and legitimacy to cryptocurrencies.
For example, news broke recently that asset-management firm BlackRock has a working group studying the assets and underlying technology, and venture-capital firm Cohen Private Ventures has invested in a crypto-focused investment fund. Both reports highlight growing institutional interest in the universe, helping nudge it further into the mainstream.
There’s also been movement toward the creation of a bitcoin exchange-traded fund in the U.S.. (ETFs allow you to own potentially hundreds of investments at once, giving you broad diversification.) In July, the U.S. Securities and Exchange Commission rejected one bitcoin-backed ETF proposal by Tyler and Cameron Winklevoss (of Facebook fame). But it is considering whether to approve a similar ETF from VanEck Associates and SolidX Partners. While the decision has been delayed, the discussions still mark progress for the crypto market.
Also, plenty of supporters remain bullish: “I believe a small group of cryptocurrencies and other blockchain applications, including Bitcoin, will become integrated into our daily lives, both behind the scenes and in daily commerce,” Brian G. Sewell, founder of institutional crypto trading platform Rockwell Trades, said in a statement. “This disruptive technology represents not only the future of money, but of how the world will do business.”
Okay. So, I should get in on the dip?
See the pattern of uncertainty? That’s pretty much the deal with crypto right now: nothing is for sure. And as much as that may be true of investing in general, the lack of clarity, along with the risks, is much greater when it comes to crypto. That’s in part because it’s relatively new (bitcoin debuted in 2009), and the futuristic technology is difficult for lay people to grasp—not to mention assign a value to.
Still, a speculative bet on Bitcoin or altcoins may be a fun and definitely wild ride—if you’re into that kind of thing and have the extra cash. (By extra, we mean that you’d still be able to sleep at night if you lost it.)
Just remember that such risky investments ought to be limited to a small slice of your portfolio. And on top of that sliver, you should hold a well-diversified collection of investments, with an allocation designed to achieve your long-term goals. That way you know you’ll have enough currency in the future, no matter what the future of cryptocurrency turns out to be.
August 20, 2018