Assessing The Rise, Fall And Rise Again Of Bitcoin And Other Cryptocurrencies
Finance writer Jesús Cedeño analyzes cryptocurrencies from an investing viewpoint. He looks at their exponential growth, assesses why they are popular, and discusses possible scenarios. All viewpoints are his own and do not necessarily reflect the views and positions of the Global Economic Report. Neither the writer nor Mohr Media’s GER website is responsible for readers’ investment decisions.
April 7, 2022—Bitcoin, the first successful implementation of a blockchain, was launched in 2009. The first real-world transaction using Bitcoin happened in 2010. It involved two pizzas for a cost of 10,000 BTCs. At the time, those ten thousand bitcoins were worth about 40 USD. By 2012, 1 bitcoin was worth around 5 USD. Today, those 10,000 BTCs would be worth a hefty $433 million US dollars.
Fast forward 10 years. At the time of writing this article, 1 Bitcoin is worth around 47,000 USD. Those who invested in 2012 have seen a staggering 940,000 percent ROI in 10 years. For those who invested earlier, the number is even more impressive. No other asset even comes close to that performance.
Many financial experts state that cryptocurrencies are just one big speculative bubble that will inevitably burst. And when it does, their value will drop to zero.
Bitcoin and other cryptocurrencies are not only more valuable in 2022 than when they started. They’re also a lot more mainstream. Almost everyone has heard of them. Many people have made tons of money off investing in them. Now a lot of people are wondering, can they still profit from investing in cryptocurrencies? Or has that particular ship sailed?
What is Cryptocurrency Investing Like?
Some people compare crypto investing to investing in the high-risk stock market. For this comparison, there are two strategies. You could buy some cheap crypto tokens and just hold on to them, hoping they will one day be worth a lot more in time. Or, you can go into quick buy-low-and-sell-high trading, trying to take advantage of the crypto market’s extremely high volatility.
Speaking of that volatility, if you’re considering investing in crypto, you need to know just what you’re getting into. I mentioned above that no other asset rivals Bitcoin when talking about the 10-year ROI. While that is certainly true, it’s also true that the crypto market is notorious for its extreme price variations. Bitcoin is worth around 47,000 USD right now. While that is high when compared to the 5 USD it was worth in 2012, it’s also 15 percent less than it was worth five months ago in November 2021. Owning an asset that can lose 15 percent of its value in less than six months is definitely not for the faint of heart.
The big debate surrounding cryptocurrencies is what their real value is and whether that value will go up or down in the future. Opinions usually fall into one of two scenarios:
Scenario 1: Cryptocurrencies on the rise
While cryptocurrencies are seen by many as investment opportunities or even stores of value that can protect your hard-earned money from inflation caused by governments’ bad monetary policy, most hard-core crypto enthusiasts have a different view. They see blockchains and cryptocurrencies as the seed for a whole new, decentralized financial system, free from the control and influence of banks, central banks, and other financial institutions.
Crypto enthusiasts see blockchain and cryptocurrency as the seed for a whole new, decentralized financial system, free from the control and influence of banks, central banks, and other financial institutions.
Some blockchains are even designed so they can introduce great improvements in healthcare, education, and other important aspects of our everyday lives. If these blockchain-based projects take off, their native cryptocurrencies will surely become very valuable.
Bitcoin’s increasing adoption, even by some important financial institutions, added to its scarcity. That’s because it has a limited stock: There will only ever be 21 million Bitcoins in existence. That sense of scarcity drove its skyrocketing growth. It’s one of the main reasons behind its good performance last year. In 2021, it started the year at around 32,000 USD and hit its all-time high of 67,500 USD in November. Other cryptocurrencies, like Ether and Solana also performed well in 2021.
Although Bitcoin failed to reach the six-figure price many predicted it would last year, many investors are confident that it will still reach it, and sooner rather than later.
Scenario 2: Cryptocurrencies on the fall
Just as there are cryptocurrency proponents and enthusiasts, there are also plenty of detractors. Most of the criticism around crypto is that its value isn’t backed by anything. No real-world, tangible asset, no commodity, not even a government say-so. A crypto token value is basically what the users say it is. Many financial experts state that cryptocurrencies are just one big speculative bubble that will inevitably burst. And when it does, their value will drop to zero.
Not all negative views on the future value of cryptocurrencies are as grim. Some analysts, while willing to accept the fact that cryptocurrencies can work as stores of value and investment opportunities, also claim that crypto is facing its more serious threat: regulation.
Traditionally, cryptocurrencies have operated with little or no regulations. As I mentioned above, crypto enthusiasts say that blockchains can create a new, decentralized financial system. While that may sound good to them and to many of us (and especially to people who might have been short-handed by the traditional banking system), it’s easy to understand why banks and governments aren’t exactly warming up to the idea of giving up that power and control.
Government Crackdowns
China was among the first countries to crack down hard on cryptocurrencies, to the point of declaring all crypto transactions illegal1. Estonia, one of the pioneer countries in licensing crypto operations, also announced tighter regulations, ostensibly for protection against money-laundering schemes2. Recently, President Joe Biden announced tighter regulations on cryptocurrencies. He called the action “a matter of national security”3. Each time tighter regulations are announced, crypto prices typically drop. Many analysts believe that, if enough countries opt for tighter regulation, crypto prices could drop and never recover.
The reality in 2022
Both of the scenarios described above are intriguing. Each has arguments in favor of them. But both of them are just theoretical speculations mainly based on the expert’s personal opinion about Bitcoin and cryptocurrencies. But what’s the real-world story? What’s been happening with cryptocurrency prices in 2022?
Bitcoin started the year with a price near US $47,000 on January 1st as part of a price recovery that started in early December 2021. However, the price began dropping as early as January 5th. It went on to lose 30 percent of its value by January 24th, when it was worth about US $33,000.
Bitcoin managed to bounce back by February 10th, although its price at US $45,000 was still slightly below the start-of-year value. It experienced another price plunge after February 10th, ending with a low of US $35,000 on February 24th. After that, there has been an upward trend in price, reaching star-of-year prices in late March up until the time of writing this article on April 3d.
Looking at these numbers, it seems neither scenario is playing out just yet. On one hand, new regulations and crackdowns have affected crypto’s prices, but these price drops haven’t lasted as long as in other years; the prices have bounced back fairly quickly, although volatility is still very high (and will likely continue that way). On the other hand, even if Bitcoin is showing a tendency to stay within the US $40,000-$45,000 price range, it hasn’t shown signs that would lead most people to believe that a large price increase is around the corner.
So Back To The Question: Has the Ship Sailed or Can I Still Get On Board?
Cryptocurrencies don’t seem to be willing to disappear into oblivion. As much as some experts say they don’t have any real value and are just a bubble that’s about to pop. Crypto enthusiasts couldn’t agree less. They say cryptocurrencies are just one aspect of a whole new economic system where the people are free to transact with one another without the need for fiat currency, central banks or, indeed, any of the traditional financial systems. They say that a crypto token’s price is solely determined by how much a person is willing to pay for it. Furthermore, they add, there will always be someone willing to pay for Bitcoin, Ether or almost any cryptocurrency.
As to whether there is still time for you to make money by trading crypto, I believe the answer is yes. If you’re going to engage in quick, buy-low, and sell-high trades on an exchange, then definitely. The high volatility that makes this possible will stick around for quite a while. If you just want to hold your crypto and wait for the price to explode, then the issue is a bit more complex. I do believe we will see a 100K Bitcoin in the not-too-distant future. A 9,000 percent ROI on Bitcoin might be too much to hope for, but there is probably still a chance to make a nice profit from crypto.
What do you think? Are you willing to give crypto a try as an investment? Or are you among the ones who believe there is no future?
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