The cryptocurrency market can’t seem to do enough to convince the mainstream investment community. Following the launch of Bitcoin in the late 2000s and its subsequent rise in price versus traditional currencies, several other cryptocurrencies have cropped up in a bid to share in Bitcoin’s success. Whether they can reach the same level remains to be seen, but it is correct to say that some of them – like Ethereum – are already making significant leaps.
What’s more interesting is that some of these cryptocurrencies are already becoming a global force in the currency markets with virtually every country in the world now being involved. To bring this to perspective, the U.S. stock market is the largest in the world in dollar value and reach, yet it does not command as large an audience as Bitcoin does. It could be argued that the general forex trading market is even bigger, but given Bitcoin only started trading a few years ago it sets up an interesting scenario for the future.
Bitcoin is available for trading in all continents including Africa. Its popularity has grown so rapidly that internet entrepreneurs have started launching products focused on specific markets. The same has been replicated in India, Latin America, Middle East and Far East Asia, among other markets. Unocoin is a bitcoin trading platform based in India while Bitcoin in Africa provides African cryptocurrency traders with alternative ways of earning Bitcoin by accumulating satoshis.
This shows that Bitcoin has not only pioneered the rise of the cryptocurrencies but also opened new markets to augment trading activity in the cryptocurrency market. For instance, Bitcoin runs on the Blockchain network infrastructure.
This technology is what provides secure trading activity in the cryptocurrency market and is increasingly being adopted for application in other markets. Companies interested in Big Data and the Internet of Things are actively pursuing potential investment opportunities as they seek to supplement operations in other business units.
Some of the top companies betting on Blockchain technology include IBM (NYSE:IBM) and Microsoft Corporation (NASDAQ:MSFT) while others are at the early stage of assessing opportunities. It is hard to say whether Bitcoin has helped in building the market for Blockchain technology, but it has in some way made it more popular in the technology sector.
Billionaire Richard Branson is a known admirer of the Blockchain technology and over the last two years, he has held an annual Blockchain Summit on his private island. While Branson acknowledges Bitcoin’s volatility could be a potential headwind to achieving its full potential, he thinks it’s working and that other similar and better currencies could emerge in the near future.
On the other hand, billionaire Mike Novogratz says he has 10% invested in Bitcoin as he claims that it has so far been the best investment of his life. Not all renowned investors are fans of cryptocurrencies. Warren Buffett (Trades, Portfolio) is clearly one of the most famous critics of Bitcoin, having been quoted by CNBC three years ago saying that it’s nothing more than a modern way of sending money, like a money order.
“It’s a mirage, basically. The idea that it has some huge intrinsic value is a joke in my view,” Buffett said while advising investors to stay away from it.
This was in 2014 and since then, the price of Bitcoin has rallied from about $500 to top $4,300 as of Aug. 17. To bring this into perspective, investors who bought Bitcoin at $500 in 2014 have gained 760% return on investment assuming they never sold a single unit of the cryptocurrency. But again, failing to sell might have been a difficult task and a big test to their emotions given the volatility of Bitcoin, which in essence, has been both its weakness and its strength.
In summary, Bitcoin is a risky currency to trade and given that one coin currently trades at over $4,300 it could be too much of a risk to take. Most Bitcoin exchanges require a minimum investment of $500, which gets you barely one-tenth of one Bitcoin.
Given the rapid rise in the price of Bitcoin and other cryptocurrencies, the return could eventually justify the risk when the timing of buying and selling is perfect. Otherwise, the risk is as fierce as the attractiveness of the expected return.
Disclosure: I have no position in any stock or currency mentioned in this article.