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Cryptocurrencies gained fame in 2017 as Bitcoin rocketed from $600 per coin at the end of August 2016 to over $4,700 at the end of August 2017. With a 6x return on investment in a year, investors from all backgrounds are taking notice. If you missed out on the Bitcoin explosion, are you too late to the game? Let’s take a look at Bitcoin and other cryptocurrencies and their viability for a strong investment return.
If you are new to the game, cryptocurrencies are digital currencies that can be used for some online money transfers and purchases and a few rare offline purchases. Bitcoin is the most noteworthy cryptocurrency, but it is not alone in this new frontier.
Other noteworthy coins include Ethereum, which currently trades at $259.45 per coin, and Litecoin, which trades at $45.53 per coin. While they are less known, they work almost identically to Bitcoin and Bitcoin Cash, the latter of which was created from a split of Bitcoin on August 1, 2017.
Cryptocurrencies vary in price compared to the United States Dollar just like other currencies, and like other currencies can be readily traded into Euros, Pounds, and other international currencies. However, some regulations limit Bitcoin, such as was recently announced in China.
It is easy to understand the history of the United States Dollar.
It was originally tied to the value of silver and gold. Since 1971, the Dollar is backed by the “full faith and credit” of the United States government.
Bitcoin and other cryptocurrencies come about through a different means. Cryptocurrencies are “mined” by computers, sometimes very large networks of computers.
These networks run around the clock completing complex equations and tasks that keep Bitcoin running. New Bitcoin is issued to these computer owners as a reward for their participation. This means the total Bitcoin available slowly and steadily grows.
It is not backed by a major government or asset, so the value is based on other’s willingness to use and trade the currency. While it grew by over 600 percent in the last year, it can easily fall, and it can come crashing down quickly. For this reason, it is important for investors to only put in what they are willing to lose.
In the week prior to this writing, Bitcoin fell 22 percent, or $23 billion in market value. This came the same week that JPMorgan Chase CEO Jamie Dimon shared that he believes Bitcoin and other digital currencies are a fraud. “It’s just not a real thing,” he said, “eventually it will be closed.”
Like with the stock market, you would need a crystal ball to answer this question for sure, but many skeptics say Bitcoin may be past its peak. However, big fans of digital currencies say Bitcoin could go to $1 million within the next few years.
This statement was made before the recent crash.
If you look around and see people bragging about their huge profits in Bitcoin, are you too late to the game? The answer is maybe. We don’t know if Bitcoin will go up or down, but I would argue Jamie Dimon is a better person to trust with financial market advice that those who exclusively focus on digital currencies.
However, if you drank the Kool Aid and think cryptocurrencies are the wave of the future, you have several cryptocurrency options to review. Ethereum and Litecoin are the most stable Bitcoin alternatives, but there are more than 4,400 cryptocurrencies traded today.
Other currencies include Monero, Ripple, YbCoin, Dogecoin, Dash, MaidSafeCoin, Lisk, Storjcoin X, SiaCoin, and Counterparty, but they all hold a far lower market value than Bitcoin, Ethereum, and Litecoin.
Some investors believe that even if they missed the Bitcoin bandwagon that these other currencies will follow suit and offer massive returns. This is possible, but unlikely. Other currencies will likely follow the trend of the biggest leaders, as is common in the stock market. If Google, Amazon, or Apple go up or down, other technology stocks tend to follow. The same can be expected in the cryptocurrency markets.
It is possible that Bitcoin will double in price, but it is also possible it will fall to zero. Because they are not backed by a government or asset, Bitcoin and its cousins do not really represent anything. They are only worth what someone is willing to pay for it. With today’s market, that is $3,566 per coin.
I made about $1,000 in Bitcoin after an early $100 investment, but when the recent charts started to look a lot like the start of a stock market bubble I took my money and ran. Knowing the risks, I felt better with $1,000 in the bank than in Bitcoin. But for you, it may be a completely different story. Whatever you do, do not invest more than you can afford to lose. Cryptocurrencies are a risky place to invest, and you never know what tomorrow will bring.
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