There’s a lot of buzz around cryptocurrencies – some investors rave about them, while others have vehemently sworn off them.
Their volatility over the past 12 months, particularly in Bitcoin, goes to show the growing level of interest in this alternative medium of exchange.
Although crypto has been around for a decade now, it’s still viewed as a new form of investment when compared to traditional or fiat currencies.
The No.1 attraction of this digital currency is the absence of a central bank controlling inflation. With a decentralised system, cryptocurrencies have less economic and political interference in movements than traditional currencies.
Obviously, the massive returns are a big appeal as well. Those who purchased Bitcoin before it went mainstream in 2017 have reaped rich rewards.
Since the start of this year, the market value of the top 50 digital assets apart from Bitcoin surged from $US100 billion to $US850 billion. With Bitcoin the market is worth well over $US2 trillion.
Dogecoin, another type of crypto, began as a joke by its creators in 2013 and took its name from a meme. It is now incredibly popular and has gained more than 5000 per cent this year alone.
What’s more, many investors are firm believers that crypto is the way of the future, said Tony Sycamore, City Index market analyst.
“Utility cryptocurrencies, such as Ethereum, are enabling and driving some very innovative solutions as the world economy becomes more digitalised,” he said.
Unlike ordinary currencies, the ups and downs of crypto are often driven by influential personalities such as Elon Musk.
“It’s a small, nascent asset class without time-tested valuation techniques, so traders naturally defer to perceived experts,” explained Matt Weller, global head of market research at City Index.
Musk is seen as a visionary entrepreneur thanks to his success with PayPal, Tesla and Space X, so when he uses Twitter to make comments about crypto (even offering to accept the virtual currency as payment for his electric cars at one point), the market sits up and pays attention.
The million-dollar question lies in the future of crypto. A recent decline in value prompts the question – where could currencies like Bitcoin be in 12 months?
A surge of investors explains this decrease, but Sycamore said it’s too early to be confident the market has reached the bottom of this current trough.
“The first sign that a tradable low is in place would be a sustained move by Bitcoin, above the resistance coming from the 200-day moving average near $41,500, followed by a daily close above the low from the 25th of April at $47,555,” he said.
“Keeping in mind, until Bitcoin climbs above these resistance levels, there are risks of a deeper decline towards the $20,000 high of December 2017.”
One thing’s for sure, the crypto market moves quickly and anyone who gets on board should be prepared for a wild ride.
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