The world has changed since HelloMonaco brought you news of bitcoin’s roller coaster ride to $20,000. The billion-dollar question of “boom or bust” has been put to the test. In this edition, we have put together some dos and don’ts and the risks you should know about when investing in crypto assets to help guide you through the cryptocurrency tempest.
Bitcoin: The Crypto Roller Coaster
Bitcoin was always a roller coaster ride. The pace at which it reached new highs created a drumbeating rally and media frenzy that swiftly erased the memories of each wild downturn.
But after the recent stagnation, the question on everyone’s mind is whether Bitcoin will still hit the speculated $50,000, $100,000, or the ultimate million-dollar mark. The Winklevoss twins we introduced in the last issue, who invested their 65 million dollar settlement from Facebook in Bitcoin, have been talking it up. And for a time the market supported them. But after the frenetic pace to record-breaking prices, that pattern appears broken.
So is Bitcoin going to be important in the long-term? Does it have any real value? Will it become worthless? When it fell from $20,000, halved in price and then appeared to be crashing below $8,000 – the naysayers came out of hiding.
No one is an oracle in investment matters, but Bitcoin has had an important role in our economy. Not only did it spur a financial revolution, it has several market segments of support and reasons to exist.
Indeed, Bitcoin has spawned a whole new category of assets, Crypto Assets or Cryptos. They first appeared as copycat virtual currencies like Liteсoin. Now it’s a term for a wave of start-ups, financing businesses rather than currencies. They are often based on the breakthrough technology Blockchain, the technology under-pinning Bitcoin.
The World Economic Forum has predicted that, by 2027, 10 percent of global GDP is likely to be stored on Blockchain platforms. This is a miniboom in itself and these start-ups raise capital by issuing coins. That is why you are seeing a wave of ICOs (Initial Coin Offerings) from a wave of technology companies seeking to raise capital. This wave is continuing to grow and investors are committing billions of euros to these new ventures.
Know the Risks
Possibilities for investment are endless, but it you are attracted to the allure of Cryptocurrencies, there are some special risks to be aware of with Crypto Assets:
Volatility (big swings in price). Be prepared for a roller coaster ride as Cryptos can be ten times more volatile than core stocks according to a study by J.P. Morgan. There are many failures — more than 50 % within the first 12 months, according to recent statistics. Even the winners can be a roller coaster ride on the way up, followed by sharp price corrections.
Special Investors. Major investors form a special part of the market, and their significant holdings have the power to move markets. These include foreign investors seeking safe havens (often from Asia), hedge funds and a few investors with jumbo holdings like the Winklevoss brothers. Keep abreast of their movements.
The rules of the game can change. Governments and regulators can step-in and change the rules. This is what recently happened with Cryptocurrencies. The importance of the Crypto market is increasing and every government and central bank is watching it closely. Despite the watchful eye of governments, it is important to keep in mind that the value of your
Crypto investment is not protected. No government or bank insurance stands behind it, although increasing regulation of some parts of the market can be expected.
The supply of cryptos can increase hugely: proponents argue that a Cryptocurrency like Bitcoin must go up in value because the supply is limited. For example, there is an absolute limit of 21 million coins for Bitcoin. But not all Cryptocurrencies are limited. Initially there was just Bitcoin and a few copycats. Now there are more than 1500 Cryptos and more are launched almost daily. The total number of coins is increasing rapidly and they don’t offer the finite number that Bitcoin does.
Technology changes rapidly. Be aware that your chosen Crypto may be based on the latest technology today, but just like our latest iPhones, the technology quickly becomes obsolete. Bitcoin was groundbreaking; but it was soon followed by Etherium, which added «smart contracts», making it more desirable for different transactions. There is always the chance that technology changes could make your Cryptos less attractive.
Hacking. Your Cryptocurrency itself may be secure, but some exchanges have been vulnerable to hacking. If you entrust your Cryptos to an exchange for a short period of time, your investment is only as secure as they are. Make sure you use a first-class exchange; for example Libertex (Libertex.org) has a Forex award as an exchange for Cryptocurrencies. Also, physical «digital wallets» can offer extra protection by storing your coins offline in a secured pen drive.
HelloMonaco’s Top Dos and Don’ts
Do Your Research — Be cautious and check the information in the venture very carefully yourself. Go to your most trusted sources of good investment advice and research. Cross check. If in doubt, pause and wait until you have ticked all the boxes. It’s your hard-earned money, so guard it well and invest wisely.
Do Have an Exit plan — It’s a roller coaster of prices and a roller coaster of emotions. Panic on a downswing or exultation on an upswing can cause you to sell at the wrong time. Create a plan (and adjust it if need be) away from the market sentiment of the moment. For example, you could plan in advance to take your original stake out if the price triples and leave the remainder in play. Then do the same again with the remainder to take profits but leave a stake in to stay for the ride.
Don’t «Bet The Farm» — Only invest 1 % of your investment portfolio in speculative investments (or whatever you can afford to lose.) There are large rewards but also significant risks — a successful Crypto can multiply your original stake many times, but at the same time it’s best to prepare for the worst-case scenario, where you lose everything.
Don’t Be A Forced Seller — Don’t treat this like money you need quickly. A big price swing down can wipe out 25 %, even 50 % of your investment in a single stroke. If you are patient and exit wisely you will not have to worry so much about the roller coaster ride.
Don’t Buy The Hype — Every time the price of Bitcoin moves up brokers will tempt you with the pot of gold at the end of the rainbow. ICO’s often sell successfully on sentiment using slick marketing campaigns. That doesn’t make you money in the long term; usually only short-term traders benefit. Don’t fear missing out.
Don’t Forget Your Secret Code — All your Crypto funds are attached to access codes. Don’t lose this code, or share your code. And don’t forget your code when getting rid of old computer. James Howells in Wales lost 7.500 Bitcoins after he binned his university computer. His secret code is lying in a rubbish dump somewhere!
The Crypto market is expected to grow rapidly — possibly as much as 20 billion dollars of new crypto money (Icos) in 2018. It is an increasing source of venture capital.
Five Reasons Crypto Investments are Here to Stay
Crypto investments are an increasing source of venture capital (and particularly for Blockchain ventures). After recent regulatory involvement and being approved for futures trading, they are on the cusp of being a recognized asset category by institutional investors.
This would make Crypto investments truly mainstream and the herd will follow.
Governments and banks continue to lose trust. By circumventing the role of banks, Cryptocurrencies (like Bitcoin) have become increasingly popular as a way to «cut out the middle man». Many believe Cryptocurrencies to be more efficient, cost effective, secure, and less subject to corruption than banks. This movement to eliminate or reduce the role of intermediaries has moved from the guerrilla phase to a determined insurgency! It’s growing.
Powerful Players with big stakes in the game. Investors like the Winklevoss twins are going to use every tool in their arsenal to maximize their investment and protect the Crypto market.
Not just the rich countries can benefit. Humanitarians make the case it could play a role in enabling many people in third world countries to make financial transactions who are ignored by the banking world. They also make the case it would be a cost-efficient way for a small country to have its own currency. Lauded as a democratic financial system, it challenges authoritarian regimes’ control on their monetary system. But it also has the potential to reinforce their control and potentially help them raise taxes.
Anonymity attracts the good and the bad. And currently many investors in Bitcoin have been able to remain anonymous. This may change with coming regulation. There is a lot of money looking for an anonymous haven.
Where is this Fast-moving Market Going?
While we can’t tell you what the price of Bitcoin or Etherium will be next year, we can predict it will continue to be a roller coaster ride for most Cryptos. The Crypto market breaks new ground nearly every month and sentiment will still create market gyrations. And start-up businesses are risky whether funded by venture capitalists or ICOs. Over half of ICOs fail within 12 months, a few make new millionaires and even billionaires. Funds are pouring in for the potential high rewards from the winners. We don’t have a crystal ball, but when we look into the future here is what we see:
The Crypto market is expected to grow rapidly — possibly as much as 20 billion dollars of new Crypto money (ICOs) in 2018.
Capital for New Ventures — the next wave of digitization will throw up enormous demand for capital funded by ICOs. There will be a continued stream of investment opportunities like Telegram, many linked to the new Blockchain technology, which promises to impact nearly every industry.
Institutional investors will enter the market — Cryptos will continue on their journey, initially an investment mainly for enthusiasts, then becoming a speculative investment for a broader group of investors. The current trend is for ICOs to be an asset class like equities with segments of different qualities and volatility. Institutional fund managers will offer funds with baskets of ICOs. You will still need to be on guard against unscrupulous promoters and for every winner there are going to be losers.
Bitcoin will not replace your euros or dollars — but it will be interesting to see if autocrats or smaller countries or a smaller Central Banks adopt it.
Regulation — the regulators will continue to move in on Bitcoin and ICOs but they will not eradicate them. They are becoming an important tool to raise capital and regulation will pave the way for institutional investors to provide more capital.
Blockchain Tidal Wave — even if you do not invest in Bitcoin or ICO’s, expect Blockchain digitization to affect you. Everything from how your votes are recorded to how your medical and pro perty records are kept, to how you exchange money. It will have an impact on your life in the next year and definitely in the next few years. The big institutions will fight to avoid being eliminated by Bitcoin and Blockchain innovations. It threatens to take away their monopoly in financial transactions and data management.
Don’t expect banks, notaries, lawyers or government departments to lie down dead and be eliminated. They will adopt Blockchain themselves; they will adopt roles within the new wave of digitization. In the process they will become more efficient and more responsive to customer wishes to take greater control of their own data and money.
The World Economic Forum has predicted that by 2027, 10 % of global GDP is likely to be stored on Blockchain platforms. This is a mini-boom in itself and attracts start-ups who raise capital by issuing coins.
HelloMonaco Crypto Pick
- And then there is the juggernaut TELEGRAM ICO which prelaunch in private sales was targeted to bring in close to one and a half billion dollars in two phases and oversubscribed at times. In total if we count the much debated public distribution phase, then that latter public launch is expected at time of press by some pundits to drive the value of the TON token to between $3 and $5 billion euros. This would definitely make Telegram’s ICO the leader by far to-date. Coins from that single ICO, if predictions are reliable (and they may not be), could possibly be valued at more than the 4 billion dollars that the whole ICO/Crypto market raised in 12 months in 2017.
- You must have heard of WhatsApp messenger. Telegram is the competing messenger-App with a big following in Russia and elsewhere. It is the brainchild of Pavel Durov, already an icon in Russia for creating VKontakte, Russia’s version of Facebook. Telegram has global supporters among Bitcoin and Blockchain aficionados for a total to-date of about 200 million users. Money has flooded in from Asia, the United States and Russia to buy into his ICO private sales. Telegram coins are called TONs. Initial funding «guesstimates» are already at almost $4 billion if one counts the two private sales target and add the much debated public launch. This is a mega-jumbo ICO by any measurement and made more attractive because it is a real business as opposed to a «currency» like Bitcoin.
- One notable statistic: Etherium, which after Bitcoin is arguably the best-known Crypto, was funded with 20 million dollars. It has millions of users and a market cap of about 80 billion dollars. Telegram is raising up to 200 times that much given the «guesstimates» at the time of press!!! Will it be a winner for all its investors? We can’t say for sure, but it will be a game changer. It also proves that the ICO market is an important source of venture capi tal (while bypassing conventional venture capitalists). Tele gram has the potential for changing the Crypto Top 10 league table (by market cap), which still has Bitcoin in first place.