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I would like to start this blog post out by stating explicitly that I am by no means an expert in financial markets. But I have been watching various markets throughout my adult life and have taken a very close look at the cryptocurrency market in the past 8 months. Here are some observations:
- 2017 was not a normal year for cryptoassets. If you invested $1000 dollars in Bitcoin on the 1 January 2017 and held it to the 31st December 2017, your investment would have been worth around $13 160- a return of 1216%.
- The returns garnered from Ethereum were far more ludicrous. If you put that same $1000 in Ethereum and held it for the same period, you would have had around $87 370 at the end of the year, a return of 8637%
- You then have even crazier outliers like Neo and Verge that would have left you with $503 000 and $9.26 million respectively with your same $1000 invested over the same time period. These numbers are simply staggering but are ultimately unsustainable.
- Surely after irrational returns such as the ones above, a large correction should not only have been expected, but should have been seen as inevitable. The market was never going to act in such an irrational manner in perpetuity.
- Warren Buffet’s famous line “Be greedy when others are fearful, and fearful when others are greedy” has been largely ignored. Rather, people have been greedy when others have been greedy and fearful when others have been fearful. This has created the yo-yo effect that we are currently experiencing in the market.
- Patience is going to be key here. This market is not even 10 years old and is an infant compared to other asset classes like stocks and bonds. We have to give it time to mature and develop. Volatility will be an inevitable part of the maturation process.
- We need to stop solely focusing on the price movements and start focusing on building and supporting the underlying technology. Bitcoin and other crypto-assets truly have revolutionary qualities, particularly for 3rd world countries. My hope is that they will be given time to develop without being ring fenced as purely an investment mechanism.
- Contrary to popular belief- regulation and compliance will help this market rather than hinder it. These regulations should be embraced, not resisted. But on the other hand, regulators have a responsibility to not implement over-onerous regulations, which will stifle growth. A fine balance needs to be struck and it requires steady and competent hands.
- Once regulations do get implemented, we will hopefully see far less scams and dud ICO’s (Initial Coin Offerings). This will go a long way to legitimising the market.
- Until decentralised exchanges are perfected, we will still see multiple large scale exchange hackings, like the Coincheck hack that was experienced this past week. Please do not keep any funds on an exchange if you can avoid it. Rather get a safe and reputable digital wallet.
- Most of the industry “experts” are actually far from it. If someone starts giving you specific price predictions or guaranteed returns, it is a usually a sure-fire sign that they should not be trusted.
- Due to the fact that this is a brand new asset class, there are no clear-cut valuation methods that have yet been produced. Traditional methods such as discounted cash flows or profit multiples cannot be used as these coins do not produce traditional cash flows or accounting profits. It is for this reason that we do not yet have a good grasp of the true value of these assets.
- Having said that, there is fantastic work being done to come up with innovative valuation methods. Chris Burniske is leading the charge with his brilliant essay entitled ‘Cryptoasset Valuations’. With all these incredible minds working on this problem, I have no doubt that we will have a solid grasp on the fair value of these assets in years to come.
Despite all of the challenges, scams, fear and hacks, this is the most interesting, exciting and promising industry I have ever seen- bar none. The price of Bitcoin and other cryptoassets may have fallen from their dizzying heights that they reached at the end of 2017, but the brilliance of the underlying technology is still there and is improving day after day.
The famous line “Rome wasn’t build in a day” is perhaps a pertinent point to remember in this context. We are merely 9 years into this exciting industry and it needs time. The promise of decentralised, transparent and immutable systems cannot be perfected overnight. But there is no doubt that the foundations are being laid.
There will be stumbling blocks and there will be crashes. The landscape may be completely different in 10 years time than it is today. But my optimistic nature lends me to believe that the collective brilliance of our human society will ultimately prevail. I have a growing feeling that blockchain based protocols will ultimately shape the next generations. Don’t write them off just yet.
Some Bitcoin Perspective in the Midst of the Chaos was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.