By Lolade Odeyemi
“Virtual currencies, perhaps most notably Bitcoin, have captured the imagination of some, struck fear among others, and confused the heck out of the rest of us,” says US Senator, Thomas Carper.
The global financial crisis between 2007 and 2008, tagged as the worst since the Great Depression of the 1930’s, has since left financial markets open to newer opportunities to grow investment portfolios. This is evident in the emergence and boom of the famous virtual currency trade rocking the cyberspace.
Virtual Currency, or Cryptocurrency, as it is widely known, is a form of digital money traded only via the Internet, using cryptography – a process of converting legible information into a code that tracks purchases and transfers. The first ever type of digital currency that emerged was Bitcoin, developed by Satoshi Nakamoto in 2009. Bitcoin has since become a household name in global financial markets and till date, remains the most traded cryptocurrency. However, in more recent years, other forms of cryptocurrency have emerged, and they include: Etherum, Ripple and Litecoin, all of which have helped in driving market expansion.
Although cryptocurrencies have been a welcomed newbie in the asset and financial markets, especially with an impressive and improving market valuation, it continues to stir mixed feelings amongst the general populace, leaving some spell-bound and others unsure of its longevity. As with other markets, the crypto trading space has had its fair share of both volatility and healthy run since its emergence and most recently, things have really been looking up for the market. As a matter of fact, the cryptocurrency market posted a market capitalisation of around $230 billion as of December 2017, hence increasing the recent frenzy surrounding virtual currency trading. Also, in April 2018, a strong rally in major cryptocurrencies like Bitcoin and Ethereum, shot up the valuation of the cryptocurrency market to $365 billion.
However, Cryptocurrencies exist in a world of their own with operations and issuance completely free from the interference or control of any central authority and totally far from the reach of any government, thus tickling the fancy of many investors. Nevertheless, this lack of institutional control might be the market’s biggest undoing as governments of large economies where crypto trade has flourished so far, are ruffling investors’ feathers and sending out warnings of possible impending doom.
Now, the million-dollar question is: ‘what happens if the governments of these large economies completely ban cryptocurrency trading?’ The answer is not farfetched, as Chinese authorities in 2017 ordered Beijing-based cryptocurrency exchanges to cease trading and immediately notify users of their closure. This move possibly signals ‘the beginning of the end’ as the cryptocurrency market is now rocked by concerns that other economies might follow suit.
With this development, it is no gain saying that cryptocurrency fanatics and potential investors have their work cut out for them, most especially with the increasing scams plaguing the crypto trading space, further increasing risks in the market. Findings have also revealed that cryptocurrencies are in no way immune to the threat of hacking, even though advocates of the trade vouch for security features, like public key cryptography system that locks away the funds and special digital storage vaults. In fact, Bitcoin, in a short space of existence, has recorded over 40 thefts, including a few that surpassed $1 million in value.
Nonetheless, in their defense, cryptocurrency investors have posited that their involvement in the trade is a calculated move to protect themselves against the devaluation of their national currencies. This might actually be a valid point worth considering for potential investors, alongside the recent boom in the cryptocurrency market. Also, with the growing popularity of the digital currency market, the number of institutional investors joining the movement has surged, much to the concerns of governments and central banks, somewhat proving that there might be more to the market’s potentials than meets the eye.
From all indications, the cryptocurrency market might be on the right track to making history in the global trading space, but no matter the growth, investors will never completely get across the red line. This is so because unlike the bond and stock markets where investors receive dividend and interest payment over time, cryptocurrency market has no tangible income stream. This makes it somewhat tricky for investors, as they gain only when the price of cryptocurrency spikes. Suffice it to say that despite the phenomenal expansion of the market, the inherent risks are at this point larger than life and investors have no chances of coming out unscathed, should there be any major downturn.
After all said and done, there really is no straight-forward answer as to whether or not it is safe to invest in cryptocurrencies. At this point, the door swings both ways, so it could either end good or bad for investors. However, wide speculations remain that this ‘may’ be the future of transactions, with, not just individuals, but more and more institutions jostling to secure units of the virtual currency. With ‘may’ being the operative word, there still is no certainty that the cryptocurrency terrain is a resting ground for investors.
At this point, it is safe to say here that, just like the general financial markets with inevitable risks, the future of Bitcoin and its upcoming counterparts still hang in the balance and might remain so for as long as market volatility exists. Also, no singular research article or piece put out can capture in totality the intricacies of the cryptocurrency world and as such, potential investors might want to dig deeper before hopping on this fast moving train.