Too Late To Buy Crypto?
For those who’ve been living under a rock and no worries if you have been since Covid is a valid excuse, here’s a little refresh on exactly what the deal is with cryptocurrency which has risen six-fold in the last year due to extreme exuberance, overhyped(ness) and speculation which seems to be never-ending like Buzz Lightyear.
I would’ve never imaged in the 21st century a world where a billionaire could just post a Tweet and lead the price of a digital currency to skyrocket in price with no actual physical price tag attached to it leading the market to go crazy.
Don’t even get me started on unprofitable stocks within Reddit earlier this year.
It seems like we’ve been a little bored and reckless in 2020.
Cryptocurrency is a form of online payment that can be exchanged online for goods and services. Many companies now ranging from PayPal to Overstoook.com and most notably, Tesla, have all allowed crypto to be exchanged for products and services or in PayPal’s case, a currency option.
They work using blockchain that manages and records the transactions which is why the appeal has gotten attention for its security.
Crypto is scarce and rare. Right now BitCoin, a type of crypto has seen its price skyrocket to roughly $55k for just one coin which is staggering. With more than 6,700 different cryptocurrencies traded publicly, the total value is worth more than $2.2 trillion which is trailing the market cap of coveted companies such as Apple, Microsoft, Google and Amazon.
To buy crypto you need to get in via BlockChain on a separate exchange. You can use Gemini, SoFi, and even retail trading apps such as Webull or Robinhood to purchase it. As opposed to publicly exchanged companies and securities such as commodities to gold and bonds on the public market, crypto is a 27/265 service that is constantly updated and can be traded anytime which leads it to naturally go up in price more often but also causes headache due to constant price swings.
If you’re interested in crypto because you want to buy some cool NFTs (non-fungible tokens) which are any type of collectibles, pieces of art, digital sculptures, or anything that is one-of-a-kind and cannot be fungible (reproduced), that is an NFT.
USD (American Dollar) and any other currency are fungible because my dollar and your dollar are worth the same and identical.
As we’ve witnessed the sale of artist Beeply’s $69 million NFT earlier this year, people are getting in on the craze wondering how a random digitalized collage could be worth that much! It seems like now we can all create the next Beeply masterpiece by just slashing our paintbrush across a blank canvass and make it worth a million dollars.
NFTS are unique files that live on the blockchain, a cryptocurrency explorer service a.k.a digital wallet where you can store your Bitcoin which includes Ethereum, Dogecoin, and other speculative coins that have some intrinsic value.
These are collectibles and buyers typically get limited rights to display the digital artwork they present. Ultimately it’s bragging rights because anyone can go search on google images Beeple’s collage, Everydays: The First 5000 days sold at Christie’s but they won’t have access to the digital volt a.k.a digital file storage system that the buyer has ownership of.
The reasons behind crypto’s rise are due in part to its hidden and mysterious innovative features. Many supporters are calling it the ‘new digital coin’ and the future of online transactions.
Yet with no regulation by the Fed Reserve, its security issues with no centralized bank able to help recover your lost crypto or customer service, no physical presence, and major swings in volatility, it raises concerns, especially as it rises in price day by day.
Personally, with the concerns laid out, I believe it’s a bit overvalued but isn’t everything these days?
Just look at the P/E ratio for Tesla Motors which is trading at double valuations than its competitors and valued more than any other major car companies combined due to its revolutionary optimistic futuristic outlook. Its profitability lags but its optimism is exceptional.
Or with SPACS, (special-purpose acquisition a.k.a ‘blank-check companies’) they’ve seen an uprise debuting on public exchanges in the past few months where celebrities have been pitching in to partner with these private companies matched with target companies to raise money.
Their profitability and outlook aren’t as prosperous as other companies’ financials and debut. They’ve been a disappointment and lagging on their initial debuts. If you want to learn about the process of going public and the difference between a SPAC, IPO, and direct listing, read here.
Popularization & Polarization of Crypto
No doubt crypto is all the Millenials and dark-pool traders talk about these days. It has only been going up since it was created a few decades ago but it is extremely speculated and cannot truly be considered a security or investment since it generates no cash flow.
For you to profit off of selling BitCoin, someone has to pay more for the currency than you did. Even businesses might be in danger as they have to have a fair price for goods to be traded via crypto.
Volatility creates a conundrum.
Yet to those who are cult followers and supporters of this imaginative online currency, let’s hear the most popular reasons why crypto = #awesome:
-Supporters see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, presumably before they become more valuable
-Some supporters like the fact that cryptocurrency removes central banks from managing the money supply, since over time these banks tend to reduce the value of money via inflation
-Other supporters like the technology behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more secure than traditional payment systems
-Finite amount = raises price because there’s more available
Yes, you’ve heard it. The prices of cryptocurrencies are riding high but coins have been long gone into the mix. There are a plethora of coins to choose from and dogecoin, in particular, has seen incredible gains in the most recent weeks.
“In many ways it’s encouraging to see more people dipping their toes into trading, but this is more like betting on a horse than investing,” said Susannah Streeter, a senior investment and markets analyst at Hargreaves Lansdown PLC, about dogecoin. “It’s very difficult if not impossible to determine when demand will subside.” WSJ
Meme coins — cryptocurrencies based on memes — are extremely volatile, and prices often are closely tied to influencers pumping excitement for the coin, said Christopher Bendiksen, head of research at CoinShares Ltd.
It would be strange for the USD’s worth to be pumped up via any online excitement or a Tweet published by Musk. The boring FED controls the monetary supply and spending in the US determining how much the dollar is worth with rarely any change ever.
Remember, with any security, the more volatility and speculation there is, there’s a higher chance for unpredictability and losses. If securities just had a limit on borrowing power and leverage it would be much better, especially in ’08 during the Housing Crisis days with mortgages and now crypto.
As a result, the speculative nature of the cryptocurrency makes it nearly impossible to say when it’s a good or bad time to buy.
The finite number of bitcoins on the market has helped to drive bitcoin’s price higher. The more people that adopt the currency, the more valuable it is.
So the question arises, “how high will it go?
I guess time will only tell but if you were to buy any of these offerings, buy it now before it jumps in price!
To learn more about crypto and how to make the right investing decisions, create an account and contact a financial advisor from Atticus at no cost!