Cryptocurrencies didn’t explode onto the public stage so much as they crawled onto it while hardly anyone was watching. It took several years following an announcement in 2009 by the elusive Satoshi Nakamoto (Kaiser Söze?) that he had released his new invention “Bitcoin” to the world for the idea to gain traction and valuations to begin their upward turn. Today cryptocurrencies are the hottest commodity on the planet, the source of constant fear amongst guardians of the old financial order and are spreading faster than herpes at a kissing contest, with nearly 1,400 different virtual currencies now in circulation. Is it all just a speculative bubble? Perhaps, though that remains to be seen. For now, the biggest question seems to be: “Have I missed the crypto-boat?”
Has the Crypto-Boat Left the Dock?
With Bitcoin currently valued at nearly $11,000 per unit, Ethereum at more than $5,000 and even an unknown like Waves valued at more than $40 per virtual “coin” it’s fair to ask where the upside is in the cryptocurrency market. Also, the recent Bitcoin crash has left plenty of people licking their wounds and plenty of others heading for the exits. And no, we’re not talking about the August 2011 crash when a single Bitcoin fell from $13.50 to $7. We’re talking about the crash that began last December when a single Bitcoin fell from $17,549 on December 11, 2017, to $7,964 on February 5, 2018. A fall of nearly $10,000 in 8 weeks.
While the price has rebounded some, there are still days when falls of $700 or $800 have people chewing their fingernails until they bleed. On top of that, there are more than a few signs that regulators are beginning to catch up to the vaunted blockchain and it may only be a matter of time before other countries follow China’s lead and outlaw cryptocurrency exchanges. If enough countries did so, it would effectively nail the coffin shut on crypto as a viable alternative to fiat currencies. But is all the wonder necessary? Has the virtual currency boat really set sail from an investor’s perspective? Or are there reasons for optimism amongst the forest of conflicting signals?
Reasons to be Optimistic
While the recent crypto crash has left heads spinning and lots of glazed eyes staring into nothingness, it doesn't necessarily signal the end of crypto as an investment. After all, any investment that rises more than 1,000% in a short time is bound to be riding a surreal wave.
At some point, that wave has to crash against the shore. Perhaps the most surprising thing is that the fall wasn't more precipitous and that valuations have rebounded nicely; although they're nowhere near their December peak. So why are people still bullish on cryptocurrencies like Bitcoin? For a couple of reasons.
The Internet Bubble Lesson
At the beginning of 2000, the NASDAQ was hitting all-time highs every day, and IPOs were more common than true love with 457 in 1999 (117 of which doubled in value the first day of trading). The sky was the limit. Pets.com? Give me 10,000 shares! Who cares about a business plan? In March that year, however, things began to go south, and by April, investors were pulling out of tech like rats from a sinking ship. And a sinking ship it was.
When the dust cleared 18 months or so later, the NASDAQ had lost 78% of its value, and the Internet was declared DOA. But a funny thing happened. The Internet didn’t disappear. It took some solid shots and was counted out but when no one was looking it lifted itself off the mat and left the arena to clean up and fight another day. Today Internet companies like Amazon and Google are amongst the largest corporations in the world, and any company that doesn’t have a viable web presence is considered so 20th century.
The moral of the story? Sometimes a good idea gets taken for a ride by speculators, but that doesn’t mean it’s not a good idea. Sometimes things just need time to find their ideal application. Here are a few sound, old world reasons why cryptocurrencies might just succeed.
Cryptocurrencies are apparently an idea whose time has come. What we’re seeing now are simply growing pains. It’s impossible to state with any certainty exactly where things will be a year, 2 years or 5 years from now but there seems little doubt that cryptocurrencies will become a larger and larger part of the global economy going forward. For the simple reason that you can’t keep a good idea down. So don’t get too low on the lows or too high on the highs and you should be fine.