Cryptocurrency is this generation’s dot com bubble, and so far this year we’ve seen some crazy market movements, the most recent trend being steeply downward from the $40k+ all-time-high. But I don’t mean bubble entirely in the pejorative.
We are seeing a huge explosion in adoption of an extraordinary disruptive technology. This presents us with the potential to be involved in a global financial revolution, and to reap the rewards as well.
But as the Financial Conduct Authority has said this week, investors should be prepared for losses as well as profits if they want to enter into this brave new world.
As crypto market capitalisation hit $1 trillion for the first time ever this year, cryptocurrencies have once again entered public consciousness as they did during the market’s last major rally back in 2017.
Friends and family of crypto investors have started asking what it’s all about, and whether they should get involved. The truth is, there is no one-size-fits-all answer. The “get rich quick” mindset should always be discouraged, and the fact that you are playing with real money in a highly volatile market must be emphasised above all else.
Let’s talk positives for a minute, though. Digital currencies are coming whether we like it or not. Use of cash has plummeted since the coronavirus outbreak. A 2020 BIS survey found that 80% of central banks are engaged in digital currency research.
This means that cryptocurrencies, such as Bitcoin, are likely to hold a place in the financial landscape for a while, as they will become the “new cash” of the digital financial world. Once our financial lives are conducted digitally, Bitcoin and other cryptocurrencies will be the only alternative to CBDCs, whose flows are likely to be heavily monitored and subject to monetary policy.
My advice for the average investor without the steel nerves of a pit trader or the deep pockets of a hedge fund manager: get your hands on some, because it isn’t going anywhere.
Never invest more than you can afford to lose, and understand that these markets are, by their nature, highly volatile. Do your research on coins, find the tech you believe in, and weather the storms that are bound to buffett us along the way.
The big picture looks good.
