One online dictionary defines the word “fluke” as an “unlikely chance occurrence, especially a surprising piece of luck.” Alternative descriptions include chance, coincidence, and accident. All of these synonyms are accurate adjectives for the cryptocurrency market.
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For the record, I am not cryptocurrency hater. In fact, my stake in Litecoin – a smaller cousin of Bitcoin – has turned out to be a most wonderful fluke.
However, my foray into digital assets was done more as an experiment rather than for pure investment purposes. Why? Because to learn how to swim you can’t read about it, you have to jump into the water! Similarly, I felt the best way to learn about cryptos was to put some money on the line, and to jump in. To hear about how my experiment has fared thus far, be sure to listen to my podcast episode titled “Adventures in Cryptocurrency Land.”
Not even bitcoin’s anonymous inventor(s) or its loudest advocates foresaw how much of a global force digital assets would become. Never mind their cocky overconfidence. The truth is bitcoin was and has always been a crapshoot.
Back in 2008 when bitcoin was born, it was designed to serve as a country-less alternative to fiat currencies like the U.S. dollar (UUP), British Pound (FXB), euro (FXE) and other currencies. Today, bitcoin has morphed into a multi-billion dollar trading vehicle that’s bought and sold on unregulated coin exchanges scattered across the globe. Yet, just a tiny minority today use bitcoin and other cryptos for its originally intended purpose of hedging away fiat currency exposure.
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Relative to other financial markets, the $500 billion cryptocurrency market is still a drop in the bucket. Moreover, bitcoin is the eldest cryptocurrency and it’s just 10-years old.
Ultimately, there’s no denying the power of digital assets and the blockchain technology behind it, along with other alternative technological solutions to real world business problems that cryptos offer.
Other things to ponder:
–Unlike the stock market (VT), trading in cryptocurrencies never shuts down. That means, no free weekends or vacations, and most certainly no trading curb closures if the crypto market crashes or faces a cyber-attack.
–Cryptocurrencies are a shining example of market inefficiencies. Bitcoin often trades at a premium on popular coin exchanges like GDAX, whereas on smaller exchanges it may trade at a meaningful discount. These pricing discrepancies are making arbitrageurs, who exploit them, an opportunity for quick gains.
–Although bitcoin is the most frequently discussed crypto in the mainstream media, smaller lesser known coins may actually offer better technological solutions and the potential for superior future gains.
–How will cryptocurrencies perform during the next financial downturn? Will they sink with everything else, or will they hold their value? Because the trading history of cryptos is limited, we don’t have any data by which to judge how they will behave during times of market stress.
–The proper and only context for trading and investing in cryptocurrencies should be within a person’s non-core investment portfolio. And regardless of whether you’re an experience trader, a financial advisor, or just a novice, ETFguide’s online courses provide a robust framework for portfolio construction and management.
–The cryptocurrency market – especially coin exchanges – unequivocally requires a heavy dose of regulation. EX: The 2014 bankruptcy of a coin exchange called Mt. Gox burned crypto-currency investors with millions in losses due to a cyber-hack. Yet, former CEO Mark Karpeles, according to a Wall Street Journal report, could walk away as a billionaire because bitcoin assets held and recovered by the defunct firm have risen substantially in value. It’s utterly amoral and indefensible that CEOs of defunct coin exchanges could ever walk away as multi-millionaires or worse yet billionaires!
–Once Wall Street figures out a way to securitize cryptocurrencies in a legal structure that passes the Securities and Exchange Commission’s smell-test, even more money will likely flood into cryptos. But it will also create a curious dilemma: ETPs tracking bitcoin and other cryptos will trade during regular stock market hours even though the assets behind those ETPs never stop trading. That’ll leave crypto-ETP investors exposed to large post-market swings and the inability to trade on those swings when the stock market is closed. On a positive note – for you unskeptical optimists – a securitized crypto-ETP will allow investors to gain crypto-exposure in retirement accounts like IRA and Roth IRA – where crypto ownership is essentially non-existent today.