A month ago, cryptocurrencies like Bitcoin looked like they were unstoppable. They increase in value everyday, sometimes fall briefly, but still trend up. Ever since the beginning of 2017, people have been asking the question: when are cryptocurrencies going to crash?
On January 17 of 2018, Bitcoin began to see a downward trend, with an extreme decline of over 8% of its value (Tradingview.com). Over the course of a day, its value went from $18,972 to $17,522. It continued to decline over the course of four days. Over those four days, Bitcoin declined by about 28%, losing over $5,000 of its original value. On top of this, a large Bitcoin exchanger and investment firm, Bitconnect, had all of it assets frozen by the US Government as a result of an investigation that it is a ponzi scheme (a form of fraud that has a belief in the success of a non-existent enterprise that is promoted by the payment of quick returns to the first investors with money from later investors). With all the negative and concurring news around Bitcoin in the market, is cryptocurrency a good investment?
At the time of writing, all cryptocurrencies are on a downward trend with no end in sight. This downward trend makes investing risky even if you have a great knowledge of the market. This is because cryptocurrencies are highly volatile––meaning that they go up and down in price very frequently and sometimes in big percentages. You should be prepared to lose whatever money was put into the investment.
Cryptocurrencies can differ in many ways such as having different levels of anonymity, algorithms and supply of currency. For instance, Bitcoin keeps track of all transactions and what account they came from. Other currencies (such as Monero) don’t keep track of transactions, and when you transfer the currency, you have the option to show what your wallet ID is like. Your wallet is basically your bank account, where you store your currency. Every currency has its own wallet that is stored on your computer. Another difference between currencies is the algorithm they use to determine how the currency can be mined and how transactions are made. The different algorithms can be used to stop application-specific integrated circuit (ASIC) mining that causes difficulty to mine currencies. ASICs make mining harder because they are made specifically to only mine on that type of algorithm that makes them very efficient. The more currency that is mined the higher the difficulty becomes and because ASICs are so efficient they make the rate of difficulty increase dramatically. Also, some currencies can have higher supply caps than others, meaning that in a currency’s lifetime there can only be so many units mined. For instance, only twenty-one million bitcoins can ever be mined, compared to Ethereum that can be mined infinity with no cap.
With all these big risks and potentially high rewards, it is ultimately up to you to make a smart decision on whether or not you should invest.