Over the past few years, cryptocurrencies have firmly entrenched among venture investors as an alternative investment tool. However, it is difficult to find a more risky area for investment than virtual money. Expecting a sharp rise in the price of Bitcoin, it would seem, guarantees fantastic income from investments, but many investors went bankrupt due to the last drop in the value of the main cryptocurrency. Now, even professional market players cannot accurately predict the future of Bitcoin.
In this article we will try to answer the question – is it worth investing in cryptocurrencies in 2020?
As you know, Bitcoin was created in 2009 and for a long time, one cryptocurrency could be purchased for just a few tens of dollars. Then, from April 2016 to December 2017, the value of the main virtual currency soared from $420 to $19,650, and the first Bitcoin investors turned into millionaires. It was predicted that in the near future, the virtual currency would cost $100,000, but then Bitcoin also plummeted to $3,183 in December 2018. What led to such sharp price fluctuations?
The growth in the value of cryptocurrencies in 2017, according to various experts was primarily due to a surge in interest in Bitcoin from not only the IT community but also ordinary people. Investing in crypto has become a trend, and in the stores, there was a shortage of video cards due to the craze for mining. The growth of Bitcoin was also facilitated by speculation in the market and its recognition as a means of payment by states and large companies. So, on April 1, 2017, in Japan, cryptocurrency was officially recognized as a means of payment, and in December, the Chicago and New York Stock Exchanges introduced futures trading on Bitcoins. The rise in the value of Bitcoin was also contributed by speculation in the cryptocurrency market. Gradually, a bubble formed, which in 2013 was warned by the former head of the US Federal Reserve Alan Greenspan, who expressed the opinion that Bitcoin has no real value.
High demand, which stimulated an increase in the value of cryptocurrency, has become one of the main reasons for the fall in the price of Bitcoin. Electronic systems simply could not cope with so many daily operations. Also, with the growth in the cost of Bitcoin, the cryptocurrency mining process became more complicated, video cards grew in price, and mining profit fell. In addition, according to Morgan Stanley analyst Charlie Chan, with a Bitcoin price below $8,600, cryptocurrency production becomes unprofitable. Thus, a drop in the value of Bitcoin leads to an outflow of investors and miners, which, in turn, stimulates an additional drop in the price of the cryptocurrency.
Bitcoin is an ideal tool for conducting illegal financial transactions and speculation due to anonymity and lack of regulation. Cryptocurrency is much more susceptible to negative news, and since all operations are carried out on the network, virtual money is especially vulnerable to hacker attacks. So, in June 2018, after a hacker attack on the Korean crypto exchange Bithumb, $30 million was stolen, and Japan lost $540 million in the first half of 2018 as a result of the actions of hackers. The policy of institutional investors regarding Bitcoin, who are interested in buying cryptocurrency at the lowest prices, also played its role. The fall of the main electronic currency caused the collapse of the ICO market, which we already wrote about earlier.
The combination of all the above factors has led to the fact that the value of Bitcoin in January 2019 was in the region of the mark of $3,400, having broken all psychological marks.
What are the prospects for Bitcoin for 2020?
Forecasts of the value of the main cryptocurrency this year and for the medium term are extremely contradictory. So, Fundastar Global Advisors co-founder Tom Lee believes that Bitcoin will rise to $25,000 by 2020. Well-known cryptocurrency investor Mike Novogratz believes that in 2020 the price of Bitcoin will rise to its historic maximum. The main source for optimism is the fact that they show Bitcoin interest institutional investors. It is expected that the introduction of cryptocurrency market regulation will return investor confidence to Bitcoin, reduce volatility and stabilize virtual money, and reduce the influence of speculators on the industry.
However, many experts note that investing in Bitcoin is meaningless. So, the legendary investor Warren Buffett believes that buying a cryptocurrency is more likely to be speculation or gambling, rather than investing. The billionaire believes that Bitcoin will disappear within 10-20 years. Nouriel Roubini, an economics professor at New York University’s business school, also believes that the growth of Bitcoin and other cryptocurrencies is just a “giant speculative bubble.” Although Roubini supports blockchain technology, considering it as the technology of the future. For example, Microsoft and IBM are actively investing in blockchain development, but not in cryptocurrencies.
The main complaint against Bitcoin is that since cryptocurrencies are actually created from nothing, they are an ordinary financial pyramid, and the rapid growth of their value is an ordinary speculative bubble. Economists cite the example of tulip fever in the Netherlands of the 17th century when they gave whole fortunes for tulips. As well as with Bitcoin, the excitement on the part of the inhabitants led to the fact that the market price for tulips was many times higher than their real value. The pyramid collapsed exactly on the day when it turned out that the market was oversaturated.
One can recall a not so distant example – the financial pyramid MMM in the early 90s. Ticket prices also soared sharply initially, and then the financial bubble burst, ruining hundreds of thousands of depositors.
So what is cryptocurrency: another financial pyramid or money of the future? We will probably find out the answer to this question in a few years. In any case, cryptocurrencies are a very risky asset with high volatility. Based on current trends in the cryptocurrency market and expert recommendations, we recommend that you be extremely cautious about investing in Bitcoin, allocating a small share of these assets in your investment portfolio, and betting on investments in the real sector of the economy.