Amongst all the hype and glamour what is actually happening?
The market capital for cryptocurrencies is over $100 billion. Most of this gian happened in the last few months. In April the market capital was just over $25 billion. That is a 300% growth in under 4 months.
A lot of this gain is because of Bitcoin as it made a 160 percent gain within this time. But there are others that did well. Like Ethereum which made over 400% gain in this time.
For many years now Bitcoin has dominated the market capital in cryptocurrencies at about 80%. But in the last few month has fallen to less than 50%.
New and huge upcomers like Ethereum and Ripple.
Is it just a big bubble?
Whether you are a seasoned investor or just a school teacher investing on the side, it is hard not to hold your hand over your ears and wait for a big pop when you see anything go up 400% in value in just a few short months. There is bound to be a burst right? History has proven this over and over again. Like the 2008 subprime disaster which is not a nice reminder, but we lived through it. But in this case, the market is irrational so far.
So some of us have not been surprised at the corrections in the last month or so. Bitcoin took a dive from $2700 to $2000. But it bounced back up to $2600 While others like steem are still in correction and recovery. But think of it this way with the explosive growth in the last 12 months. It seemed more like a relaunch of cryptocurrencies in general rather than a bubble.
It is a good thing that a lot of these gains have come from other currencies other than bitcoin. That is more of a widened interest in cryptocurrencies and ess of a bubble. Like Ethereum blazing the trails at the moment makes sense. The technology is better like smart contracts in the block chain.
Another ripple is that an upcoming cryptocurrency based on settlements between banks have signed up over a hundred banks. This may take a while but imagine how many people with a more old school mindset to cryptocurrencies will get excited.
This technology is still developing and yet has so much potential. And the public has never had access to invest in something in it's infancy and developing so fast. For example, many of us saw the coming of the internet and the mobile phone in the 90s, but there was no access to investing in them. This is a game changer for investors...
Can Cryptocurrencies be Valued?
Maybe and not really... There is one explanation that may be able to put a value on this and if it can. And if it is true, cryptocurrencies may actually be worth what they are trading at or even more.
The biggest challenge is that cryptocurrencies are not publically listed companies. No earnings, no expenses and no EPS. We cannot look through their books and audit them in any way. And there is no way of determining a hypothetical value in the event of liquidation. They play by different rules.
However we can compare it to the total worth of other old school currencies. Like the total money or gold supply. Like the total value of gold is more than $8 trillion dollars. So if gold ever replaced or superseded gold, it's value would be a fraction of the dollar.
Or you can compare the value of cryptocurrencies to M2. Which is the total money supply in the U.S. The M2 value is about $13.5 trillion. Which also means that cryptocurrencies are just a tiny part of that.
Be Informed as an Investor
Yes...be informed or you will be knocked over by something you did not see coming. That is an age old rule.
I do not believe it is wise for crowds of people to rush in and buy cryptocurrencies just because of hype and surges in the market. In the early 90's every employee and pensioner in Hong Kong was throwing money at the market. Then in 1997, disaster struck. Most of these people laughed of shouted at a broker all day and had no clue what was going on. A lot of homes and hearts were broken.
With cryptocurrencies or anything else. Get into it for the right reasons. Know what it is, and know what it is doing. Invest in cryptocurrency to learn and for transactions. Or because you know this technology will be a big deal in the future because:
- Replacing gold as the main store of value in the world
- Transforming inter-bank dealings
These are just a couple the changes that may be coming up that makes it exciting. Try and see the long term vision when it comes to crypto, and not just caught up in a bull wave without knowing the bull.
If you mess with the bull...
I hope this brought some clarity when it comes to investing in cryptocurrencies. If you liked this article please upvote and follow. And most of all it would be great if you can do a resteem for me.
