Cryptocurrency revolution: from where to where?
Cryptos, such as bitcoin, ethereum and litecoin, originated in 2009 as a peer-to-peer electronic cash system. They were designed to be an innovative, secure, fast and anonymous way to transfer money between people instantly over the internet. Crypto coins, the common name for units of cryptos, are recorded in an electronic ledger, rather than existing in physical form. The creators of cryptos, or “miners”, have monetary incentives to keep the ledgers secure to protect their own cryptos.
Increasingly, cryptos are regarded as a currency that is uniquely distinct from other currencies, such as traditional fiat currencies like the US dollar, euro or pound sterling. The value of cryptos is rising, primarily centred on three central qualities of being costly to mine, easy to verify and relatively limited in supply. Trading in cryptos is characterised by sharp and unpredictable movements, so they are volatile currencies carrying notably higher risk than traditional currencies.
The volatile nature of cryptos also means that both rewards and losses for crypto traders can be considerable. Bitcoin, for example, is finite in supply and the overall number of coins is limited when compared with traditional currencies, at only 21 million coins. Transactions in cryptos are recorded online in publicly available ledgers as a confirmation of transfers. With the public’s increasing demand for cryptos as a currency and their rise as a trading instrument, the major crypto market makers, such as AAATrade, apply identification and due diligence procedures to create a safer, more transparent environment for crypto trading.
Recently, particular attention is being paid to bitcoin, currently the most widely used crypto coin and crypto-traded instruments due to bitcoin’s dramatic gains this year, worth approximately $1,000 in April and having risen to $11,500 at the end of November. A currency appreciating nearly 12 times within a few months is exceptionally rare. This phenomenal rise in bitcoin value has driven the market demand for cryptocurrencies higher, and also highlighted the gain potential and risks for the increasing community of crypto traders.
Aside from bitcoin, most cryptos are freshly minted. This means the potential for expansion of the crypto-market capitalisation is considerable, which in turn means the value of many of the larger cryptos could potentially rise due to increase in demand. Crypto is a new frontier and is therefore challenging to predict, which is what makes it both exciting and risky for many traders.
Another distinction between cryptos and traditional currencies is cryptos are uniquely available for trading 24 hours a day, seven days a week, compared with traditional currencies, which can only be traded during market hours. If you want to trade cryptos on Saturday or Sunday or after market hours on weekdays, you can do so.
The uniquely high-volatile nature of cryptos can open the door to a new way of speculative trading. The wide daily pricing range of major cryptos means intraday trading can be an appropriate strategy for those traders with an appetite for highly volatile trading.
As for the future of cryptos, predictions vary as much as the movement of cryptos themselves. Vítor Constâncio, president of the European Central Bank, compares bitcoin to tulip bulbs in the 17th-century trading bubble in the Netherlands. Conversely, Mike Novogratz, billionaire hedge fund legend, says: “Bitcoin could be at $40,000 at the end of 2018.” Which reminds us of the enduring truth that we must rely on our own common sense.
While cryptos are new and exciting trading vessels, it is evident that the risks associated with trading cryptos are considerably higher than risks with respect to other currencies. Nonetheless, there is a potential for well-informed, disciplined traders with risk appetite to trade in cryptos responsibly and successfully, and join the crypto revolution.