Finally it appears that cryptocurrencies are starting showing some rational behaviour. Yes, the volatility is still there, but it is becoming reasonable by the day. We still have huge upward movements and retracements, but we perhaps have a semblance of order creeping in now, I believe.
Take a look at the following charts. There were three major events in 2017 alone, and frankly speaking, 2017 has been perhaps the most eventful year in the history of cryptocurrencies, particularly bitcoin.
In the first case, Bitcoin civil war between developers and miners sets a meltdown in bitcoin, taking it from $3k to $2k in a single day.
Link to stories: http://www.bbc.com/news/technology-40654194
Immediately thereafter, China banning cryptocurrency exchanges and Jamie Dimon, the CEO of JP Morgan famously stated in open media that Bitcoin is a bubble which will end soon, and went on to elaborate what he would do with his staff should he found them trading in bitcoins. As expected, Bitcoin nosedived from $5k to $3k this time.
However, being resilient as it is, bitcoin prices recovered very quickly to scale new heights once the dust settled down.
Then we have the instances of the hard forks on August 1 and October 25, 2017 respectively giving birth to bitcoin cash and bitcoin gold. This lead to some small time corrections, but by and large bitcoin remained surging to reach a all time high very close to $8k on news of the Segwit 2x fork being called off.
The latest news on November 11 that bitcoin cash miners have more hashing power over bitcoin, and subsequent saga that unfolded with the mainstream developers changing statements on a daily basis, and eventually ending with their statements that they stand together for both chains to prosper and be developed. All this lead to another mainstream drama with bitcoin cash surging to a high of $2.8k only to crash down to its issue price of $1.2k at the time of writing this report. Simultaneously bitcoin dropped straight to below $5.5k but recovered to be close to 7k at the moment.
All this drama preplexes investors and traders to a great extent. And are actually scary to a first time entrant to the world of cryptocurrencies. As such there is a lot of scare in the social media on the validity, legality and non-existent governement regulations on cryptocurrencies, with only a handful of countries either having legalised cryptocurrencies (eg., Japan) or having promulgated regulations for the same (eg., Australia). The traditional breed of investment advisors (read mutual fund and stock market advisors) are actively discouraging clients in investing in cryptocurrencies owing to being extremely volatile, as also not regulated by market regulators, say the Reserve Bank of India and Securities and Exchange Board of India or similar for other countries. To top it, mischief mongers continue to throw scamming schemes at the unsuspecting investors through launch of worthless ICO, fraudulent mining schemes and other get rich quick networking models, and we have a completely confusing and disoriented market system set in for the common investor to be scared enough not to venture into this fabulous technology shift which would likely impact the whole world, and keep such investors on the sidelines while they should be able to jump in these early stages.
As my good and extremely knowledgeable friend Nitin Singh states, we are yet in early stages of this ‘wild west’ scenario, and it will take another couple of decades for the system to mature.
I would assume that these wild fluctuations are there to continue for some more time, perhaps a couple of years, or longer. But as more and more people join this revolution of being able to transact securely with each other directly, without the requirement of a central governing and guaranteeing agency, we would see this gaining traction over a rapid multiplier exponential growth. Already we can see smart money come in form of hedge funds, which is likely to increase over the next few months, first tentatively, and then quite rapidly.
In such a scenario, it is advisable to start investing smaller amounts, and then increasing the bets as one finds comfort in the system. It would also be in context for an investor to train himself or herself on the concept of blockchain and transactions, and the overall cryptocurrencies ecosystem.
While volatility is not good for any traceable asset, it takes a while for equilibrium between demand and supply to set in. As the market matures with a larger participant base, price volatility would start to taper away. It’s only rational then to start investing in this asset incrementally as we go forward. With CBE declaring futures in Cryptocurrency trades as early as next month, we are likely to see a huge participation from mainstream investors which is nothing but good news.