Not so many years ago, nobody outside academic circles and the further reaches of Silicon Valley had heard of cryptocurrency. Schemes for circulating private money were as old as money itself, but remained resolutely low-tech as communities issued what amounted to tokens or vouchers entitling the holder to various goods and services such as milk or window-cleaning.
Today, cryptocurrency is everywhere, exhibiting all the features of a booming asset. Not the least of these is that those who have yet to buy into cyber money are endlessly regaled with tales of how much profit has been made by those who have.
Boom times coming back?
Now, at the start of a New Year and new decade, is a good time to take stock of what is still, in relative terms, a brand new asset.
What have recent years taught us?
One lesson is that cryptocurrency can be very volatile. A boom year in 2017, during which the best-known cryptocurrency, Bitcoin, seemed to be leading a charge that was destined to see “crypto” take over the world and render central banks redundant turned into a bust in 2018.
More recently, boom times seem to be on their way back.
A second lesson is that bigger is better - there are hundreds of minor crypto-currencies, but they are very thinly traded. Some circulate only among tiny groups of people and are accepted in payment almost nowhere.
Following on from this, a fourth lesson is that consolidation in this sector is long overdue, so when choosing what cryptocurrency to invest in during 2020, it is good to have an eye for the sort of denomination that may either be the next big cryptocurrency or may be bought out on generous terms by one of the larger names.
Cryptocurrency meets social media
The five currencies we have selected have one thing in common. All went into the doldrums at the turn of the year but all have shown recovery potential. When choosing what cryptocurrencies to invest in, timing is important. Leave it too late, and everyone else will be on the bandwagon, so once you have judged that a recovery is likely to be under way, itn is time to act.
Our first choice is Cardano, which describes itself thus: “Cardano is a decentralised public blockchain and cryptocurrency project and is fully open source. Cardano is developing a smart contract platform which seeks to deliver more advanced features than any protocol previously developed…The development team consists of a large global collective of expert engineers and researchers.”
Cardano traded at $0.041 on 5 January 2019, sliding to $0.036 by the start of this year. But since then, it has made a partial recovery to $0.041.
Similarly, Stellar changed hands at $0.114 on 1 January 2019, tumbling to $0.046 at the beginning of this year. Now it is worth $0.0048.
Stellar is a digital payments system that has the ambitious goal of “uniting the world’s financial infrastructure”. It adds: “It’s decentralised, open-source, and developer-friendly, so anyone can issue assets, settle payments, and trade. Stellar is a blockchain, but it works more like cash.”
Next comes Steem, the place where cryptocurrency meets social media. In its own words: “Steem is a social blockchain that grows communities and makes immediate revenue streams possible for users by rewarding them for sharing content. It’s currently the only blockchain that can power real applications via social apps.”
Steem traded at $0.28 on 5 January 2019, lost its footing to $0.123 as this year began before clawing back some ground to $0.145.
Prepare for competition
Ripple is priced in sterling, but the same pattern holds good, from £0.2562 on 17 January last year to £0.1422 at the start of this year and now trading at £0.19. As with Stellar, its focus is on payments. According to its website: “Today’s global payments infrastructure has more in common with the outdated postal system than this generation’s internet. Recognising this friction in payments, our founders established Ripple with the idea of using blockchain technology and digital assets to enable financial institutions to send money across borders, instantly, reliably and for fractions of a penny.”
It adds: “This unification of the underlying infrastructure that ties institutions and providers together not only helps our customers grow their business but also it helps enable the world to move money like information moves today – a concept we refer to as the Internet of Value.”
Finally, the sun round which the cybercurrency planets revolve – Bitcoin. Here, the pattern is a little different but, if anything, even more impressive, from $3,798.62 on 5 January last year to $7,177.50 at the start of the year and currently $8,795.62.
Suggesting Bitcoin as which cryptocurrency to invest in may seem to violate our urging you not to get on a crowded bandwagon. Surely Bitcoin, the most profitable cryptocurrency over time, is already very oversubscribed? Can there really be any more upside or is it not more likely that anyone buying bitcoins today is merely filling the “greater fool” role, market-speak for someone who is buying an overpriced asset from someone smart enough to get out while the going is good?
Well, possibly. But we would also draw your attention to the fourth lesson mentioned above, that of the looming wave of consolidation in this sector. When selecting a cryptocurrency likely to survive and thrive in this process, Bitcoin simply has to be top of the list.
The currency has enjoyed a strong start to 2020. Forbes magazine noted on 15 January that: “Bitcoin has experienced some compelling gains this year, climbing more than 20% in the last few weeks… Some market observers have cited hopes the cryptocurrency will enjoy greater adoption in 2020 when explaining these gains.”
It added suggestions that Bitcoin had previously been undervalued. Furthermore: “Another factor that analysts spoke to was bitcoin’s draw as a safe haven or hedge against macro-economic turmoil. Several market observers cited the conflict in Iran as a factor causing investors to flock to the world’s most prominent digital currency.”
But for cryptocurrency in general, the sky in 2020 is not entirely cloudless. Official hostility to cyber-cash is exemplified by President Donald Trump, who has described cryptocurrencies as having no more value than thin air.
Meanwhile, the attentions of regulatory and law enforcement agencies, the prominence of which helped deflate the last cryptocurrency boom in 2017, have not gone away. Across the world, official and politicians are convinced that the potential for cryptocurrencies to be abused to launder money, buy arms or drugs or generally to finance criminal activity is limitless.
Expect to hear of new initiatives to require internet service companies or businesses that accept cryptocurrency in payment – or both – to shoulder a “duty of care” to prevent misuse of cyber money.
Finally, some central banks are working on cryptocurrencies of their own, so be prepared for more competition in this space.
All that said, cryptocurrency can be a very rewarding, if sometimes nerve-wracking, investment. Good luck!
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.