Ripple has increased in value by OVER 1000% over the last few years. Link has other cool charts.
There are now over 500 different cryptocurrencies in operation, ranging from Bitcoin and Ripple to lesser known entities like Blocknet and Quantum. As these currencies have gained traction, prices and demand have inflated hugely. The price of Bitcoin has risen from around $0.04 in July 2010 to well over $2000 this year.
With astronomical gains from ventures such as Ripple Investment over such a short period, one can’t help but imagine turning back the clock and investing in such an opportunity.Still Time to Cash in on the Gold Rush?
Given the enormous rise of cryptocurrencies over the last year and the widely perceived view that the market has become a bubble, is it worth investing in these currencies now?
Bitcoin was the first cryptocurrency, but since its inception less than ten years ago, hundreds of others have been established. The chart above shows the return on investment (ROI) of eight major cryptocurrencies over the last few years. One would have to say though that Ripple was rather disappointing over the period, only returning a measly 1031.01%.
To say that the last two months have been extraordinarily fruitful is a bit of an understatement.
As incredible as this view is from the top of the mountain, with currencies this volatile, and free of any regulation, you can find yourself at the bottom of a valley pretty quickly.
An investment that can offer such reward is certainly not devoid of risk. With traditional major currencies, short of a default or black swan event, you can usually be pretty confident that a currency won’t swing by anything like the figures shown in the chart above. One would suppose that the intrinsic beauty of Cryptocurrencies lies in their unpredictability. Given the current notoriety of these currencies, investors have piled in, sending the prices soaring over the last few months.
Speculation is rife amongst analysts over whether the currencies are headed for a big drop or will just continue growing. Last week, Jeffrey Kleintop, Charles Schwab’s chief global investment strategist, suggested that bitcoin was in a bubble unlike any the world had ever seen before.
Analysis from Goldman Sachs suggested that the price of Bitcoin would drop to around $1800/1900 before recovering for another surge, surpassing even the $3,500 threshold by some estimates.Out with Gold, in with Cryptocurrencies
Historically, in times of trouble, smart money flees to safety. Traditionally gold has fulfilled that role, most recently in the 2008 financial crash when the smart money went in early, before the crash. The price of gold went from under $650 in 2006 to over $1500 by 2011. Many investors saw a looming financial crash, invested in gold early on and later reaped the benefits of their foresight.
Gold has traditionally been perceived as a safe haven; a means to preserve wealth while other assets and currencies fluctuate wildly in uncertain times. Gold retains its value, and in times of uncertainty often outperforms other investments. As a general rule of thumb, the success of gold is inversely proportional to that of stocks, i.e., when stocks do well, typically gold performs poorly, and when stocks do badly, gold performs well.
Cryptocurrencies and gold might not seem that similar, but in actuality, they evince similar properties. First, both are unregulated; governments and international organisations have very little power over the markets for each – less so for cryptocurrencies. Second, and arguably most importantly, both act as a safe haven for money in times of trouble.
Even though cryptocurrencies are less than a decade old, their very existence was borne out of the financial crash and the desire to create new currencies that governments and international bodies simply could not regulate or control. Currencies that were free from domestic uncertainty and unshackled from the constraints of central banks. Thus, cryptocurrencies are fast becoming a safe haven in times of uncertainty much in the same way that Gold has fulfilled that role through the ages.Cypriot Crisis in 2013
The clearest indication as to the power of Cryptocurrencies as a safe haven was an event, back in 2013. In the midst of the Eurozone crisis, Cypriot banks required an unprecedented bailout.
The government was forced to freeze accounts and prevent depositors from withdrawing their money, in order to prevent a run on the banks. The price of Bitcoin exploded, surging by upwards of 80% in a matter of days; as the government explored the option of tapping deposits as part of the bailout with the IMF and EU.Discerning the Times
Historically speaking, bull runs generally last for an average of seven years. Over the last year, the bull run economies have been enjoying has reached unprecedented new heights.
The Dow Jones broke through the 20,000 point ceiling and has just continued upwards. Looking at events around the world, it is hard not to see an impending crash coming from the perspective of some analysts. Below are six factors that could contribute to a crash:
Some would argue that all the ingredients of a bubble currently reside in the global economy’s current bull run: fundamental (e.g., technological revolution), financial (massive growth in monetary credit) and physiological (a suspension of belief in traditional valuation measures).
Historically speaking, there will be another crash at some point. How big the crash is or when it is, is anybody’s guess. Many of the same indicators that precipitated the financial crash in 2008 are here today.Cryptocurrencies, Hedging Against Another Crash
Given the lack of historical data for cryptocurrencies, one can only speculate on what would happen to them in a financial crash. If the event in Cyprus is anything to go by, they could potentially do very well as a safe haven if there is another recession.
Conversely, many analysts currently view cryptocurrencies as a bubble, given their extraordinary price rise over such a short time. In the near future, it looks as though their prices will come down – by how much though, is anybody’s guess. In the longer term, investing in cryptocurrencies could be a wise gamble if the world does go into meltdown again.