Cryptocurrency, or digital currency, is the latest talk of the town, one of the hottest topics being discussed throughout the globe.
The investors and traders, including the ordinary man, are in a frenzy over cryptocurrencies.
What’s the real reason behind it?
Of course, the recently soaring prices, especially in case of Bitcoin, has urged the investors to excessively pour their money into these emerging blockchain-based virtual currencies.
The sky-rocketing gains in Bitcoin over the past few months have surely developed the FOMO (Fear of Missing Out) factor in many. Looking at people turning into millionaires overnight just by holding a digital coin is surely a point of attraction for new and upcoming investors.
The investing community is looking forward to various digital offerings in order to grab any potential opportunities in the future. Not just Bitcoin, but:
- And the list goes on…
A large number of cryptocurrencies are gaining traction all around the world.
While analyzing this Crypto mania, you probably come across two set of views. On one side, the crypto enthusiasts and some prominent financial voices believe it to be the dynamic future of money. But, on the contrary, there are legendary investors and industry experts who take it as a big froth wherein a giant speculative bubble is building around in this digital world. Both have their own valid reasons to justify the same.
Now, the real concern for us lies in knowing “Is this Crypto craze worth it or just a bubble that’s going to burst soon?”
Let us analyze the key factors that shall help us reach a valid conclusion for the queries related to this hard blowing Cryptocurrency wind.
Cryptocurrency: Key Deciding Factors to Consider
Cryptocurrency, a medium of exchange created and stored digitally has given birth to a fast and growing market for speculators and investors.
No doubt, it has enticed the crypto fans (Bitcoin in specific) world-wide by generating enormous returns. The various eye-catching aspects like decentralization, safety of transactions, lower fees and easy access can’t be underestimated.
A zone for exploring digital innovation at its best through various emerging and new technologies like blockchain seems to be already here.
However, in the plethora of benefits, the numerous risk factors attached to these digital currencies can’t be ignored.
Some of the common ones that make it look more or less like a bubble are:
1. No underlying asset
The first and the foremost thing to know is that it has no underlying asset, unlike stocks. It has no physical form and exists only in the network. There is no central authority controlling it and the network is decentralized.
The demand and supply are the major price determinants for these digital coins. In fact, we can’t even call it a currency or an asset as such since it does not possess their essential characteristics.
2. No government backing
Although some countries have regulated the use of cryptocurrency and accepted its utility and benefits, there are many who have advised their people to stay away from this Crypto wave and haven’t yet granted it a legal status. The missing factor of complete government support further deepens the thought of this being looked upon as a huge bubble.
3. Technical hurdles and lack of fundamental knowledge
To understand what a cryptocurrency is and how it actually works is quite complex. You need to have a technical background and in-depth research before entering into this crypto world. The lack of requisite fundamentals can result in losing your hard earned money. When it comes to crypto-investing, thorough homework is needed.
For the common man, it’s not easy to get into the intricacies of crypto investing. Too many technicalities and limited knowledge can just leave you confused in a fantasy world.
4. High Volatility/ High Risk
Looking at the wild price swings, this seems to be a bubble where people are trying to make huge bucks through these inherently risky investments.
Quoting an example, the Bitcoin prices experienced a roller coaster ride and reached as high as $19,000 on the 17th of December, 2017 .Whereas it bounced back and fell below $14,000 in the next few days. It again regained in a couple of days and now these prices fluctuate every day. Such huge price variations, plus the extreme volatility attached to it, definitely raises genuine doubts in the minds of risk-averse investors.
Cryptocurrency: A Final Take
Technology can really disrupt the financial world, and the crypto-currency craze is a prime example. There seems to be no stop on it and it’s getting bigger with each passing day.
However, different crypto-currencies cannot be lumped into one basket and they can’t be considered at par. Each one has its own unique features and underlying utility that one needs to understand before diving into it. The one that is in the best cryptocurrency list right now might not be positioned in the same manner, if you check even after a short time.
To conclude, crypto is still young, facing instability and is likely to see drastic changes in the upcoming years. In the long term, these digital currencies might become the next big thing and key platforms used by huge companies. It all primarily depends on their large-scale adoption and popularity in the next few years.
Overall, cryptocurrency has a long way to go before it actually replaces or nears other traditional currencies and becomes a strong tool for global commerce and economic activities.
Are the governments of different nations going to regulate it and increase its use in different sectors? Or will they restrict their people from investing/trading in these virtual coins? What are your thoughts on it?
Will the cryptocurrency craze continue? Is this the beginning of a new digital era or just a bubble in the making, likely to burst soon?
Whatever it is, one thing is worth mentioning here, this emerging cryptocurrency wave, especially Bitcoin & Ethereum, that was unknown to many, has driven the investing community by a huge and forceful financial storm. This innovative digital revolution has already happened… whether here to stay or not, it’s here to change the world at least for some time.
These are just personal views and not to be constituted as professional advice in any regard. Make your own decisions!
About the Author:
Harleen Kaur is a finance enthusiast and a passionate blogger, running the personal finance blog, Fintrakk.com. She shares knowledge and simplifies things in the field of finance and investment for the common man.