2020 was a fantastic year for cryptocurrencies and Bitcoin in particular. Given how the world has changed around us at such a rapid pace, it’s highly unlikely that anyone could have predicted what would happen.
Unlike the 2018 to 2018 crypto rush, the huge increase in cryptocurrency prices cannot be attributed to the sudden influx of retail investors. With the global economy in turmoil, investors have turned to alternative investments as a means of hedging the value of their assets.
A presidential election unlike any other and the threat of a violent insurrection by Trump supporters have shaken investor confidence to a degree. Because of this, it is highly likely that financial institutions and other investors have turned to digital currencies.
Thus, if you’re considering the cryptocurrency market, let’s take a look at some of the factors you’ll need to take into account.
1. The cryptocurrency market is volatile in the extreme
It’s no understatement to say that Bitcoin and other cryptocurrencies are fickle mistresses. Prices are liable to suddenly change with a little-to-no warning in the blink of an eye. As the market is active 24 hours a day, you can expect to be constantly on your guard when investing in cryptocurrencies.
The 2020 Bitcoin price rally saw investors scrambling to get into the market in an attempt to cash in on the mad rush. In the midst of all this, BTC prices suddenly dropped by more than 21% within a few minutes as the market corrected itself following an all-time high.
As a result, the prices of other cryptocurrencies crashed accordingly as investors fled the market in anticipation of another dip. Instead of plummeting, prices once again stabilized, and many were left scratching their head wondering what happens next.
If you plan to invest in cryptocurrencies, you would do well to be prepared to face down moments such as this. Massive volatility coupled with huge risks and the potential for monumental losses or profits.
Therefore, make sure you have your assets safe into a trustworthy crypto wallet. Read more about wallets here: https://blog.tezro.com/what-is-cryptocurrency-wallet/
2. Cryptocurrencies are totally unregulated
One of the reasons behind crypto’s nascent popularity was the fact that it is entirely unregulated. Unlike fiat currencies, cryptos are not issued by the central monetary authority of any one country. Instead, they can be mined and traded by just about anyone.
This has allowed cryptocurrencies like Bitcoin and Ethereum to remain resilient towards external factors such as government policy and geopolitical tensions.
Due to this, investors have begun turning towards Bitcoin and other cryptocurrencies during times of economic uncertainty. The recent surge in institutional investor interest in Bitcoin could in fact be attributed to a turbulent 2020 U.S Presidential Election.
However, this can also prove to be detrimental for crypto investors. The first being that governments seeking to curb capital outflows may outlaw the trading of crypto in their home country.
Or as seen in the case of the SEC lawsuit against Ripple Labs, government agencies can even take punitive action that may lead to the prohibition of a particular cryptocurrency.
3. Crypto valuations can be affected by whales
Due to the unregulated nature of the cryptocurrency market, the presence of whales i.e. investors with large holdings of cryptocurrencies can lead to increased instability in an already volatile marketplace.
Whales have massive holdings of cryptocurrencies and can either drive up or force prices down. If you’re lucky, you end up on the upside of a bull run as these huge investors snap up large tracts of cryptocurrencies.
For the less fortunate, you’ll find your investment crashing right in front of your eyes as the market gets flooded.
Many have attributed the recent dip in Bitcoin prices to massed sell-offs by whales looking to crystallize on the value of their investments.
Hence if you’re looking to get into the crypto market, it’s best to come prepared and stay diversified lest you end up falling victim to a sudden shift.
Investing in cryptocurrencies is definitely not for the faint-hearted. However, if you are able to understand and manage the risks that you face, you’ll be able to cash in on what is likely to be the new investment frontier.