Jakarta -Cryptocurrency fever may have subsided, but its trade roller coaster has increased bets for investors to understand the direction of the virtual currency.
Is the cryptocurrency of a financial asset, currency, commodity, or something entirely new? Bitcoin and other cryptocurrencies have faced this kind of categorization since stomping public awareness last year.
The fierce debate surfaced, among other things about how cryptocurrency should fit into the average portfolio of investors or indeed should be part of the portfolio.
However you define it, cryptocurrency becomes hard to ignore since its rise approaches the $ 20,000 level in December 2017 (though on May 2 it slumped to $ 9.145 after recent selloff).
Although performance in the past certainly does not guarantee future results, there is an analysis of the action of digital tokens in the last 16 months to explain what would happen if you decided to HODL (hold / hold) regardless of the FUD (fear / fear , uncertainty / uncertainty, and doubt / doubt).
As is known, it will not surprise anyone who follows the wild movements of Bitcoin, but volatility and virtual currency go hand in hand. It can be a good thing when its value increases. But it can also be frightening when the market moves down.
This is one reason why investors tend to pursue higher returns from the more volatile asset classes.
Over the past 16 months, cryptocurrency has recorded a larger movement than stocks, bonds, commodities, and traditional currencies.
Some noncryptocurrency investments are as large in movements as most tokens, including Steinhoff International Holdings NV, a South African company involved in accounting scandals, and bonds issued by Bank Otkritie FC, the largest recipient of financial bailouts in Russia.
Extreme volatility is probably the biggest argument over the treatment of cryptocurrency. One of the main rules for a good currency is having to keep a stable value.
You certainly do not want to spend Bitcoin on groceries today if you think the value of cryptocurrency may soar tomorrow, or otherwise earn a salary in the form of Bitcoin if you think its value will fall.
Bitcoin Most Towered
Compared to stocks or bonds, trading activity and market capitalization among cryptocurrencies are highly concentrated in a small group of players.
When Bitcoin’s prestige has diminished in recent months amid the emergence of so-called alternative coins, such as EOS and Litecoin, basically Bitcoin still looms over other cryptocurrencies.
According to David Drake, founder of LDJ Capital who invests in cryptocurrency, an important point for investors is that selling lesser known cryptocurrencies may be more difficult than they seem.
Buying these smaller tokens should be considered like an initial venture capital investment, which often requires long-term ownership.
How Assets Affects
Money managers can anticipate how movement in one market will affect prices in other markets because most stocks, bonds, commodities, and currencies are linked.
Some investments (eg US and European stocks) share characteristics that means they tend to rise and fall together, while riskier assets (emerging market bonds) and safe havens (gold, yen) usually move in opposite directions.
Meanwhile, some assets have no co-relation with each other. Investing in an asset portfolio that behaves in different ways can help reduce the risks facing investors.
Cryptocurrency has a weak relationship with existing asset classes, can be good or bad depending on what role you want them to play in your portfolio.
This could change if more institutional investors such as banks and hedge funds start buying digital tokens, but for now most cryptocurrencies only move in line with each other.
Nevertheless, there is more activity in this space compared to a year ago, although some new investors have left it.
“Anything worth US $ 400 billion will not be ignored for too long,” said Dan Morehead, chief executive officer of Pantera Capital Management LP, told Bloomberg TV.
Sign in First
There is a time-tested stock market strategy, which is to buy a company’s stock in its initial public offering (IPO) in hopes of getting a quick profit once the stock begins to trade.
In an Initial Coin Offer (ICO), where digital tokens are offered instead of shares, similar dynamics are played. CoinDesk estimates ICO action has raised nearly US $ 13 billion for startups associated with blockchain.
Although the quality of ICO is highly variable and its return range is much broader than the IPO of technology, the majority of larger coins have provided attractive short-term benefits. But how long this will last is unpredictable, as governments around the world step up their oversight of the ICO.
It is important to remember that, as in any market, the historical performance of cryptocurrency is a rough guide to the future.
When the regulators began to notice its existence and the enthusiasm surrounding cryptocurrency faded, it could be a recent sell-off for a sign of a difficult period to come. Or maybe it was just a point before the next hike. Whatever it is, investors should tread carefully.