Bitcoin may be losing value, but don’t freak out (yet)
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Back in the early days of the internet, there were a ton of companies all trying to figure out the most important question any American can ask: How do I make money off of this? Of course, many of them failed, and failed spectacularly. But some of the survivors of the Dot Com Bubble ended up making early investors very, very rich – Amazon.com, for example, which started out selling books in 1995, didn’t turn a profit until 2001, and its cloud services now underpin roughly 150,000 other websites. All of this is to say that investing in an internet company in the ‘90s was risky business, but the upside if you succeeded was unimaginably high. The same is true of cryptocurrency – Bitcoin, Ether, Litecoin, and other blockchain-based digital currencies. People who put $100 into Bitcoin back in 2010 would be sitting on almost $75 million worth of the currency right now. But we haven’t even scratched the surface of Bitcoin’s potential, or the potential of other cryptocurrencies like Ether. The total market cap for cryptocurrency could grow exponentially… … or crater entirely. Unlike real currency, there’s absolutely nothing holding up the price of cryptocurrency – it’s entirely speculative.
Earlier this year, when Bitcoin and Ether prices were rising like a rocket, I purchased about $100 each of the digital currencies. I was honest about the fact that I was willing to lose it all, and it almost looked like I was going to. Soon after I purchased ~0.04 BTC for $100, the price of Bitcoin peaked at almost $2,900, plummeting back down towards $2,000. Ether had an even worse go of it – after reaching a high of almost $400, it had lost over half of its value by mid-July. You could argue that the price drop was a necessary course correction, especially for Ether, which was never designed to be used as an investment tool. In fact, unlike Bitcoin, you can’t actually use Ether to buy anything, making its value as a currency even more speculative than Bitcoin. (Bitcoin is the chosen currency of the internet underworld, so it has that going for it, at least.) Many of the people investing in Ether are people who are worried about missing out on the next big cryptocurrency – myself included. There’s no way that we can go back in time and buy Bitcoin in 2010, but maybe buying Ether in 2017 will lead to the same outcome: a small investment in a speculative currency turning into millions of dollars of usable cash.
The value of cryptocurrency is notoriously volatile, with Bitcoin having reached heights of almost $1,000 in the past and then quickly falling back down to the low hundreds for a few years. When I started writing this, Bitcoin prices were almost completely recovered, rising closer and closer to the $3,000 mark. Now, it’s fallen back towards $2,500. In the world of Bitcoin, that’s a relatively small dip, but if the value of a fiat currency like the U.S. Dollar dropped in value like that, the world economy would be shook. You can probably expect the value of Bitcoin and other cryptocurrency to continue to fluctuate wildly for a few reasons. For starters, the amount of people actually involved in the cryptocurrency market is relatively small, which means every buying or selling trend is magnified significantly. Plus, because the currencies are so volatile, they’re good investment vehicles for people who want to day trade on the ups and downs, adding to the uncertainty. Most people, however, hold on to an investment for the long haul, which can make following the day-to-day volatility of cryptocurrency a heart-wrenching activity. One minute, you’ve lost hundreds of dollars. A few days later, you’ve earned it all back. For people new to cryptocurrency, this probably looks insane. But my advice: If cryptocurrency is your moonshot investment, treat it that way. As long as you’re okay with the possibility that you could end up losing all of your investment, you should hold on to your cryptocurrency and stop checking the price on a daily basis. Remember that $100 investment from 2010? If that hypothetical investor sold after the first huge price crash back in 2013, they would’ve merely made a few thousand dollars instead of a few million.
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