On April 14, bitcoin updated its maximum and reached $ 64.8 thousand. Ether did not lag behind - throughout April, its rate is confidently holding above the $ 2 thousand mark. Anyone who looks at the growth rate of leading cryptocurrencies over the past year will ask the question: has the digital train gone and is it possible to start investing in cryptocurrency now?
Fundamental reasons for the growth of cryptocurrencies
The events of 2020 have once again proved to us that nothing is permanent in the world. This thesis also touched upon the financial markets. A year ago, investors clutched at their heads - there was practically not a single asset in which they could safely invest. Even gold dived, which, it would seem, was always presented to investors as something unshakable and permanent. In March 2020, the rate per ounce of gold was under $ 1.5 thousand, and the usual price of $ 2 thousand remained unattainable until August.
The situation in the markets and in the industry led to the need for quantitative easing and the release of so-called helicopter money, which literally took the falling stock market under the arms and put it on crutches. Some stocks rallied unnecessarily and turned into bubbles. At this point, investors, including institutional investors, turned their attention to cryptocurrency as an asset class that has little correlation with other assets.
For 16 months, bitcoin has grown almost 9 times: in January 2020, its rate was $ 7.4 thousand, and in April 2021 it reached $ 64 thousand. Investors appreciated the breakthrough of cryptocurrency and began to consider it as a risk hedging tool and a profitable investment on medium and long term. Large companies and venture capitalists saw bitcoin as a defensive asset that insures money against depreciation during the crisis.
Tesla alone has invested $ 1.5 billion in bitcoin, and the largest portfolio of bitcoins is in the hands of Grayscale - the value of all bitcoins they hold is $ 7.4 billion . The world began to understand that cryptocurrencies are the future, the next step in the evolution of money.
Ethereum Growth: Triggers and Prospects
In early February 2021, the Chicago Mercantile Exchange added Ethereum futures to its arsenal, providing traders with another universal tool for trading cryptocurrency (the exchange launched Bitcoin futures in 2017). The popularity and rate of the second cryptocurrency are growing for several more reasons. The first of them is DeFi technologies, which are currently mainly developing on the Ethereum blockchain. The crypto community clearly appreciates the prospects for DeFi technologies: the volume of funds blocked in decentralized financial applications is approaching $ 100 billion, and the number of their users is already more than 1 million people.
The upcoming ETH 2.0 update also makes Ether a promising investment. The update is designed to solve scalability problems and help the blockchain move from the Proof-of-Work algorithm to the Proof-Of-Stake algorithm, which will reduce the likelihood of centralizing the entire industry in the hands of large miners - operations will be verified by the staking participants themselves. In addition, the update will solve two of Ethereum's main pain points today: it will increase the speed of transaction processing and reduce the prohibitively huge fees that scare many users away from the second most important crypto network.
The popularity of NFT: will the hype last
Today, only the lazy has not heard about NFT tokens - a huge number of NFT transactions with cosmic amounts have already thundered in the news. Digital items, tweets, and a host of other non-physical items were also sold. The record holder for the deal was the artist Beeple, who sold a collage of his digital paintings for $ 69 million.
If we discard all the hype around non-fungible tokens, then the question arises: what is the technology itself without the notorious hype inflated by loud news? Yes, now the popularity of the NFT market is provided by an influx of enthusiasts who tie their digital paintings to NFT tokens and think that they can sell it for thousands and millions of dollars, but in the future, NFT technology will be able to facilitate the transfer of copyrights and simplify the procedure for purchasing real estate. It is this perspective that makes NFT technology a real boon for the investor.
How to find your Grail among cryptocurrencies and not invest in a dummy?
To find your promising crypto asset, closely follow what is happening in the world of cryptocurrencies and learn to correctly interpret local events. To help here are blogs of expert practitioners, statements of opinion leaders, channels with a detailed analysis of interesting new crypto projects. Keep in mind that the main threat for an investor is cryptocurrency bubbles, which are fueled by hype.
To recognize them, you need to be able to identify the signs of a hype bubble. The first is a continuous stream of news feeds. This includes various mentions in social networks, discussions of "experts" who have come from nowhere and various media personalities. The second sign is the frantic desire of the public to become involved in the object of the HYIP. The number of victims of the hype fever directly affects the number of news feeds, because everyone is tempted to write a tweet, mention their favorite hype on the Instagram stream and somehow promote a loud project.
“More often than not, the value of any HYIP object is significantly overestimated,” says Tatyana Maksimenko, an official representative of the Garantex exchange. Therefore, it is so important to be on the alert when it comes to the hype of cryptocurrency projects. People succumb to the herd instinct and begin to blindly invest their funds in projects, the prospect of which is illusory or completely absent. The greater the influx of people, the faster the bubble inflates. The lifespan of such a bubble rarely exceeds one year, after which an explosion occurs - the project depreciates and goes to the bottom, taking with it people's investments and their hopes of making a profit. "
In terms of artificially inflating a bubble, the story with Dogecoin, which is actively promoted on Elon Musk's Twitter account, is indicative. Each mention of a DOGE coin by Elon entails a rise in its rate - fans blindly rush to buy it. On April 1, Elon Musk wrote that he was going to send Dogecoin to the moon and over the next half hour the coin rate increased by 20%. On April 16, the rate of the comic coin has already reached $ 0.45, which was a historic maximum, and on April 22, its rate fell by 40%.
Frenzied growth and a sharp, precipitous fall in a short time - these are the main signs of a cryptocurrency bubble. Of course, professionals in the hype market - and there really are such professionals - can make a fortune by participating in crypto bubbles. As in any pyramid, everything decides whether you will have time to fold your cards in time and leave with what you won. Your risk tolerance and… luck will play a huge role here! What if you buy DOGE for $ 0.16 now, and tomorrow Elon Musk will accidentally post a photo of his dog on Twitter, after which the price of DOGE will double or more?
Is it worth investing in crypto?
If you asked yourself such a question and are already aware of what cryptocurrencies are, then the unequivocal answer is yes, it is worth it. Despite the fact that cryptocurrency remains a high-risk asset, with some knowledge, investments in it can bring profits quite quickly. Investing in cryptocurrency for a long time will also give an excellent result - experts predict that Bitcoin will reach the $ 100 thousand mark this year. Looking at the speed at which the main cryptocurrency is breaking new marks, it seems that reaching a hundred is a matter of time.
As for Bitcoin and its recent market moves, the BTC price plummeted 20% on April 18th. On Sunday, the market was overloaded - 20 billion margin positions were opened with the bitcoin rate above $ 60 thousand. Since the markets are closed on weekends and liquidity decreases, a correction began on Monday. The main conclusion from all this is that the decline in the bitcoin rate is due to technical, not fundamental reasons. The correction that has come will continue for some time, it is possible that the bitcoin rate will drop below $ 45 thousand, but after the correction, the growth of the main cryptocurrency will probably continue.
“The situation that has arisen on the market today only plays into the hands of investors,” says Tatiana. “They got a chance to enter the market without buying bitcoin for $ 60 thousand or more - now is the time for those interested to invest in digital gold. Skeptics do not get tired of saying that the growth of bitcoin has a limit and it is pointless to buy it at such a rate. You can answer this way: if you bought bitcoin a year ago at a price of $ 7,000, then in April 2021 your investment would have multiplied 9 times. "
Finally
There are no permanent things left in the world, and that is why investors should act many times more carefully - even the most seemingly correct investment may ultimately not bring benefits, and a crazy investment will unexpectedly give a good result. News feeds decide everything - one event, even one word can affect the movement of complex financial mechanisms.
First you need to determine your own risk tolerance - it is from this indicator that you should start when choosing an investment strategy and drawing up a portfolio. You should never adhere to only one direction - it is best to correctly distribute forces among several investment options and, if necessary, transfer forces and funds from one to another.
Investing - and cryptocurrencies are no exception - should be approached with a cool head, be able to distinguish an artificially inflated HYIP from promising projects and startups that will be able to develop into something more in the future. It is important to remember that no matter how reliable the forecasts and comments of the most intelligent experts seem, the decision is made by you, and, as a result, only you yourself are responsible for everything that happens with your investments.