I’ve been reading a lot about the various cryptocurrencies and trying to dig through the misinformation to get to the bedrock of what’s going on. The first thing I’d like to say is cryptocurrencies are a complete game changer for the world financial system…..ignoring them may well be detrimental to your business.
For those of you wondering….at its simplest level the blockchain operates in a similar fashion to the DNS that most domain investors are familiar with. There are additional levels of cryptography added (sort of like DNSSEC) to ensure transactions are legitimate but what it all boils down to is a ledger of transactions held by a distributed computer network.
Of recent days, the cryptocurrency naysayers have been jumping up and down saying, “I told you we are in a bubble!”. Why is this? Bitcoin (the dominant currency) dropped by around 30% and this got them all excited about how Bitcoin is in the process of collapsing.
This year Bitcoin has been undoubtedly in a bull run but let’s put the decline in perspective. At the beginning of the year you could buy one coin for $AU1265 (Australian dollars – source btcmarkets.net) and the lowest point of the recent drop was $18870.
This means if you bought a single coin on the 1st January 2017 and sold it at the lowest point of the recent correction you would make 15 times your money. I’ll take that any day!
What this also suggests is that Bitcoin would have a LONG way to decline before earlier investors would start losing money on their investment. I’m not saying that Bitcoin can’t completely collapse but the momentum is definitely still in the other direction.
To understand this more fully, the volume of trades reported by btcmarkets has jumped over 10 times since the beginning of the year. The interest in Bitcoin as an investable asset class is still growing which will put an upward pressure on value as the demand continues to increase.
So where will Bitcoin max out at? If I knew that then I’d be a very rich person…..what I do believe is that it has a way to go.
There is one thing for certain. If you do decide to invest in Bitcoin, then expect a wild ride as prices do fluctuate all over the place. I highly recommend you get cleared by your cardiologist first before investing with serious money. I actually find investing in Bitcoin more akin to going to a casino…..never bet with money you’re not prepared to lose.
This then brings me to two other cryptocurrencies that I’m really interested in, Ethereum and Ripple. Out of the thousands available, why do I like these two? Both of them are underpinned by very unique business models rather than simply just another cryptocurrency.
Ether is trying to solve the challenge of automated digital contracts while Ripple has been working on international payments. Both these market segments are massive and provide real value to real business rather then just betting on a number going up or down.
Demand for both these currencies is exploding and this is being reflected in the price. Both currencies are also backed by major players in the VC and traditional financial institutions.....all big ticks for my investment dollars.
For me, I’ve invested a small amount in multiple currencies that I plan on holding for the long-term. There has only been one other market that I’ve seen behave in a similar fashion to crypto-currencies and that’s domain investing.
I think domain investors will find it very natural to invest in crypto-currencies but like any investment, take a very close look and as I said before, only invest money you’re prepared to lose.