In a hundred years 2017 probably won’t be noteworthy enough to remember – but in the first few months of 2018 it seems as though 2017 will go down forever as the year of Bitcoin. It’s not without reason either; The crypto began 2017 in a range between $800 – $1500, skyrocketing to highs of $20,000 by December of the same year. The media readily responded producing a torrent of stories about people making billions overnight, about Bitcoin mining farms using enough energy to power a small country and of early adopters trading a fortune’s worth of Bitcoin, for pizzas years ago – these stories cemented it in the collective consciousness. This caused both professionals, institutions and laymen to rush to trade cryptocurrencies.
The Bitcoin fanfare overshadowed a few hidden gems – these cryptocurrency underdogs had similar or even more astounding rises, but were never reported on or barely mentioned. Ripple – touted by its creators as a completely new payment network to replace the currently outdated infrastructure and Ethereum – which swam through markets in Bitcoin’s wake, keeping momentum even as its mainstream crypto counterpart floundered.
Cryptocurrencies: Should you trade them?
The real question is: do any of these virtual currencies warrant markets’ interest? As mentioned above we have seen cryptocurrencies’ potential as a speculative market (which propelled Bitcoin to its astounding $20,000 highs) and as a decentralized currency. But in both of these capacities cryptocurrencies have been shown to be volatile and fickle. We have seen retailers accept various types of cryptocurrencies as payment, but then suspend crypto payments during high volatility. As a speculative market, within the span of days (if not hours in some cases) the value of cryptos’ price rose and fell by double digit percentages.
Cryptos seem similar to the 19th century California Gold Rush. Although most would draw a comparison between the tulip-mania where speculation caused the price of a single tulip bulb to skyrocket in value and then plummet. Cryptocurrencies seemed less civilized though, more of a venture for pioneering individuals – it wasn’t a luxury but a need created by a diminishing trust in established government currencies – people trying to create fortune out of thin air. It was more of a frontier and less of a hobby of the upper crust.
Cryptocurrencies and the Gold Rush Comparison
If the Gold Rush is taken as a tangential allegory for the rise and fall of cryptocurrencies – Bitcoin being the closest parallel especially as we reach the maximum level of Bitcoin this current protocol (i.e. version) allows – 21 million Bitcoin, with more than 16.8 million currently in circulation. In the Gold Rush once all the gold was mined in the hills of California, the bottom fell out of the infrastructure itself. Cities that were created to accommodate miners and hang-arounds where left derelict, roads and facilities that serviced the boom and bust industry crumbled. More significantly, the price of gold remained practically unchanged from $19 to $19.39 from the peak of the gold rush until its end, a span of 7 years. Since then gold has established itself as a safe-haven, something that fluctuates inversely to currency and stock markets (when stock and currencies are up, gold is down and vice versa). Could this be the future of cryptocurrencies? Unfortunately, it is too soon to tell at the moment, cryptos seem to move independently of other assets – currencies, stock and even metals markets. We did see a spike in the price as a result of traders using bitcoin as a safe haven during the first Korean missile crisis, but it wasn’t observed during the second series of N. Korean missile testing. Granted if there was a trend it was likely buried within the constantly increasing price of cryptocurrencies at the time.
The future of cryptocurrencies is unsure – their prices might reach an equilibrium as the layman’s interest ebbs in speculative crypto investing – causing the price to stabilize and in turn reestablish their viable use as a currency.
Another scenario, one which more and more analysts are getting behind – is the value of cryptocurrencies as a technology, since blockchain (the base technology behind most cryptocurrencies) can be used by any industry that needs cataloguing and verification of transactions. Since “miners” are instrumental to the process of making and verifying transactions – it could easily be assumed that mining won’t disappear completely either.