Cryptocurrencies have been on a roller coaster ride lately. In November, Bitcoin was trading at over $6,000. In the span of just a month, it dropped to less than $5,000. This is not the first time this has happened - in 2013-2014, the currency increased from less than a dollar to nearly $1,200 before dropping back down again. Is this the perfect time to invest in digital currencies? Or will they crash and burn before you can get your hands on them?
Experts say that cryptocurrencies are here to stay. But while some say it's a good idea to buy now and others suggest waiting until the volatility slows down, there's no right answer yet. Read on for advice from experts like economists and academics who study this topic every day!
What are cryptocurrencies?
Cryptocurrencies are digital currency that uses cryptography, the same technology that secures online banking, to store information and transfer funds. These are not considered a legal form of money, though, so don't pay your taxes on them.
Some experts say cryptocurrencies are the future of payments and could eventually replace credit cards. These are called cryptocurrency millionaires.
They differ from traditional currencies because they can be transferred around the world and store value more securely. Also, they are cheaper to use, especially for merchants.
Many people say they have seen people making money on cryptocurrencies in the last couple of years, but they acknowledge it's been difficult to figure out who is profiting and who isn't.
Why are cryptocurrencies so volatile?
"Cryptocurrencies are not listed in an exchange," says Brian Kelly, founder, and CEO of BKCM. "While in the past there were derivatives available to insure the value, they've all been unwound. There are no traditional financial institutions that accept or offer support for the cryptocurrencies, so they're entirely dependent on the level of speculative activity in order to keep it going."
It's that level of speculation that's causing these wild price swings, along with the daily news cycles surrounding the value of these currencies. "Bitcoin is no longer the only cryptocurrency in the world, and the name has been diluted, so as a result, the volatility of Bitcoin has lessened in the past year," says César Salza, CEO and founder of Quantitative Brokers.
The different types of cryptocurrency
Cryptocurrencies, which are known as digital or cryptocurrency tokens, are similar to stocks but based on something totally different, like cryptography.
There are four major types of cryptocurrencies:
- Bitcoin
- Ethereum
- Litecoin
- Dash
As mentioned earlier, Bitcoin is the best known of the cryptocurrencies because it's the most popular and the most widely used.
Bitcoin is a type of cryptocurrency that is essentially a new kind of money, but unlike money itself, it's not digital, you can't just download it. In fact, when people talk about "money," they mean "cryptocurrency."
In order to purchase something with Bitcoin, you use a Bitcoin wallet. There are lots of different wallets, but the most popular ones are Bitcoin Wallet and Coinbase Wallet.
What do experts say about cryptocurrencies?
Last month, economist Jeffrey Herbst said, "The crypto-currency industry and many of its uses will endure, even as those who have profited from the speculations over the last year and a half are left with great losses." Bitcoin is far from the only popular digital currency. Here are some of the most popular currencies:
Ethereum is an Ethereum-based virtual currency (not necessarily digital currency). It's used as the fuel for smart contracts, which are contracts written on a blockchain that can execute automatically at a certain time. Ethereum is also used as a platform for decentralized applications (DApps) and many token-based start-ups.
Bitcoin is a digital currency that can be used to pay for goods and services. It can also be used as an investment vehicle.
Should I invest in cryptocurrencies now or wait?
Some say now is the time to get in. Albert Dandari, CEO of Zerodha, told The Verge, "It’s not about the price of the coin, it’s about its utility and scalability."
Paul Bataillon, CEO of Aragon, agrees, telling Forbes, "If you were to tell a 25-year-old, they wouldn't know what it is but you'd give them a certain chance of making a profit, I think that would be fair and reasonable. If that means ignoring some of the price volatility, I think that's fine."
In an interview with the Economic Times, Chief Economic Advisor Arvind Subramanian said that digital currencies should be made available to those who do not have access to banks.
Conclusion
Some experts believe that now is the right time to invest in cryptocurrencies. Others think that we'll see cryptocurrency prices in the hundreds for a long time. To find out where the experts on this topic are on this issue, read on.
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