The Paradox of Cryptocurrencies

0
142

The Paradox of Cryptocurrencies

ForexMinute.com – A famous quote “Bitcoin is a Bubble” says too much about the potential nature of cryptocurrencies. It smartly signifies the spell under which a bubble bring us, with its beautiful and enchanting appearance. Though the extent of that spell is very short; because when the bubble bursts, it breaks the trance and brings us back to reality. Bitcoins, and now over 100 other cryptocurrencies, have also brought us to the same perplexity. The only difference is that that this bubble is far dramatic and believes to get burst in fractions.

The technicalities behind the quote are the very perks cryptocurrencies enjoy today. Since six years from the inception of the first virtual currency, the first-move advantage seekers are still trying their best to keep this “digital” trend alive by investing into the alternatives. The question is no longer about the comparing Bitcoin to a bubble, but it is rather about understanding that each bubble is covering the next one.

**relatedarticle**

It is quite obvious that even if Bitcoin sees its demise, there will be around hundreds of other alternate virtual currencies that will try to replace it. But even an investor understands that it is just the name that changes, because in the end, almost every cryptocurrency has the Bitcoin’s DNA. The Mt. Gox-like attack can thus be repeated on other digital currencies also, whether it is Litecoin, Dogecoin or other. Bitcoin however has managed to survive the blow, and also is recovering gradually. But the question is, how far this fundamental paradox can survive?

Not until you stop believing in them.

Even if you are considering to invest in cryptocurrencies, it may be preferable to treat your “investment” in the same way as you would treat any other highly speculative investment. In other words, try to acknowledge it as like any other investment that is associated with risks. A cryptocurrency has no intrinsic value outside its domain. It is the buyer who decides how much he wants to pay for it at some point. This makes it very volatile and stimulates huge and unexpected price swings within the matter of moments. If there were an academy award for Best Risky Investments, Cryptocurrency Trading could have swept it easily.

Take the Bitcoin’s plunge from $260 to $130 within six hours in April 2011, or the very recent hacking attack at Mt. Gox after which Bitcoin fell to $600 from the peak of $1100. If you cannot afford such volatility, digital currency trading has nothing for you.
While the opinion over cryptocurrencies continues to stay divided, this is a bitter fact that their limited supply and increasing use is what that is keeping their prices up. The digital currency paradox in the end is deeply rooted in the expectations of its investors.

The future of these currencies are where the world wants to drive them to. But to sum up, these currencies are as valuable as a thin air. But when you put your faith in them, they are as valuable as gold. Decide wisely.

To contact the writer of this article: Yashu Gola at yashu@forexminute.com