Debatable. But if we are measuring success by price growth, then very successful.
Here are the market caps for the leading cryptocurrency, Bitcoin, from April 2013 to November 2022:
(market cap = total value of all coins that have been mined... based on the latest traded price)
Source: CoinMarketCap
Quite an astonishing level of growth. But the volatility hasn’t always been in the upwards direction. It’s challenging to time any market, let alone one that has been as volatile as the crypto market, so dollar-cost-averaging is probably your best method.
Dollar-Cost Averaging 💰
Also known as the constant dollar plan, dollar-cost averaging is about splitting your purchase into separate periodic transactions. You will commit a fixed amount of money to spend on a particular investment on a regular interval schedule. Dollar-cost averaging aims to reduce risk by reducing the impact of price volatility when you make a purchase and, especially with volatile price action, more often gets you a better entry price.
Deciding to be an early investor in cryptocurrency has quite often turned out to be a life-changing decision. Bitcoin, amongst other cryptocurrencies, has made many people extremely rich (noted below). Ultimately, others easily gaining such levels of wealth in such a short period is what continues to draw users into cryptocurrency.
(Accurate as of October 2023. Source: BitInfoCharts).
Ultimately, for cryptocurrency to survive in the long run, it needs to go beyond retail investor hype and become adopted by mainstream entities.
The acceptance rate of cryptocurrency (mainly Bitcoin) from major businesses has steadily accelerated. Companies such as Tesla, Microstrategy, Sotheby’s, Paypal, Pavilion Hotels & Resorts and Square have all embraced Bitcoin. This embracement has either been in the form of adding it to balance sheets, facilitating the purchase and sale of it, or allowing it as a medium of exchange. This last one is the most important, as that’s where crypto has arguably struggled most in its quest for acceptance. Unfortunately for Bitcoin, being accepted as payment for Tesla was suspended three months after it was announced to much fanfare. CEO Elon Musk claimed that Tesla was overly concerned about the apparent energy intensity of Bitcoin mining. It is worth noting that a number of the companies listed above only recently began embracing cryptocurrency, suggesting that we may be seeing the beginning of widespread acceptance.
Another noticeable increase in acceptance has come from the financial sector, with big investors, hedge funds and financial institutions responding to pressure and offering their customers a slice of the crypto pie. From Q1 2018 to Q2 2022, the cumulative value of assets under management of cryptocurrency funds globally has increased from $5,580m to $57,800m (936% increase).
Cumulative value of assets under management (AUM) of crypto funds globally from Q1 2018 to Q2 2022 (in million USD):
Source: Statista
The crypto space has gained many high-profile supporters, some of whom were labelling it as a Ponzi scheme only a few years ago. However, it still has its fair share of criticism, from environmentalists who point out that Bitcoin's energy consumption is a threat to global sustainability efforts (currently higher than the total energy consumption of Pakistan) to central bankers who have likened the current crypto phase to the seventeenth century “Tulip Mania”.
Time will tell whether the current cryptocurrency phase is part of it being the disruptive innovation that supporters believe it to be or whether it’s just a continuation of the greater fool theory being played out.
In financial markets, you may hear something referred to as a ‘bubble’, which means that investors have acted irrationally, misallocated resources, and pushed an asset's price up to the point where it becomes highly overvalued. Current examples of such could be meme stocks or cryptocurrency coins. At some stage, the bubble will ‘burst’. The greater fool theory is the concept that an investor can make money within the period of it being a ‘bubble’. The belief is that they will be able to sell an asset for a higher price than they bought it for, as there will be somebody willing and able to buy it at a higher price. When played out, assets are purchased for a significantly higher price than their "fundamental value". It’s a speculative way of investing, as there is no guarantee of a ‘greater fool’... it may turn out that you are the greatest fool in the entire chain (though we hope not)!
CRYPTOCURRENCY’S SUCCESS SO FAR. COMPLETED. ✅
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