After experiencing a huge run-up in price toward the end of 2017, crypto assets like Bitcoin have collapsed more than 80% from their January 2018 high, surpassing the NASDAQ’s 78% decline after the dot-com bubble burst of 2000.
It seems like just yesterday we were educating our clients on Bitcoin 101, and now the crypto bubble appears to have imploded. So are Bitcoin and cryptocurrency dead? The digital currency mania of 2017 was fueled by speculation that Bitcoin would become “digital gold” and that blockchain-enabled technologies using crypto tokens would transform industries across the board, from banking to organic food. While the potential of technologies like blockchain is still evident, the market got ahead of itself and turned blockchain into “hypechain”.
Even progress on valid uses such as smart contracts and payment transfers has been curtailed by the challenges of market speculation and manipulation, security flaws, government regulation, and slower-than-expected Wall Street adoption. Cryptocurrency and blockchain still have transformative potential, but this past year has shown us that the investment ride is likely to be a bumpy one. It is also difficult to know which digital asset will become the industry standard: will it be the original Bitcoin or one of the newer “altcoins” such as Ethereum, Ripple, or Litecoin? Ultimately, those that prevail will be those that offer the most value and utility in the marketplace.
So what should investors do? As we saw last year, the potential for gains with crypto assets is great, but so is the potential for loss. Given the speculative nature of crypto assets, most folks are better off sitting on the sidelines until the assets live up to the hype.
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