Discover why Bitcoin’s recent bounce doesn’t necessarily calm the biggest concerns surrounding cryptocurrencies. Get expert insights on the future of crypto in human touch language.
Digital currencies have made a roaring comeback, with the recent approval of Bitcoin exchange-traded funds by the US Securities and Exchange Commission. This has sparked renewed interest among investors, especially in risky assets such as technology stocks. If you were brave enough to buy Bitcoin during the cryptocurrency winter of 2022, you’d be relishing a whopping 180% gain by now.
But before you feel the pangs of FOMO (fear of missing out), it’s important to consider survivor bias. The sky-high prices of major coins like Bitcoin and Ether don’t tell the whole story of the roller-coaster ride that crypto traders have been on. Imagine the investor who jumped into the crypto world in 2021, only to see many smaller “altcoins” crumble into oblivion due to rampant pump-and-dump trading practices.
Even well-known tokens like Luna and its associated stablecoin, TerraUSD, have faced turbulent times, with founder Do Kwon being implicated in fraud charges. Similarly, bankrupt lending platforms and the volatile nature of nonfungible tokens (NFTs) serve as a stark reminder of the countless ways wealth can vanish in the crypto world.
The journey of holding onto Bitcoin, or “HODLing” as it’s known in the crypto community, has not been for the faint of heart. The extreme volatility and stress levels experienced by crypto investors far surpass those seen in traditional stocks or bonds. Craig Erlam, a senior market analyst, describes the experience as “stressful” and “quite eventful.”
Diversification in the crypto industry has proven to be crucial, as even seemingly solid projects like Luna and FTX have faced downfall. But it’s important to note that diversification alone may not have saved investors from overlooking warning signs in these projects, such as inflated promises of returns and cozy relationships between trading platforms.
Despite the drama and roller-coaster nature of digital assets, their real-world usefulness and integration into payment systems remain unclear. This lack of fundamental value makes them a tough sell in traditional markets. According to expert Molly White, many investors tend to brush off red flags in the industry by saying, ‘Well, this is just how it works in crypto,’ making it harder to diversify effectively.
In the end, the question of whether investing in crypto was a mistake hinges on your expectations. Craig Erlam emphasizes that crypto remains an incredibly speculative instrument, and the real mistake lies in investing money that you can’t afford to lose while expecting hefty returns.
The cryptocurrency industry continues to be a wild and unpredictable ride, with lessons to be learned for both newcomers and seasoned investors. As the market evolves and regulations change, staying informed and exercising caution remains imperative.
By ©2024 Bloomberg L.P.