Cryptocurrency is the word which comes to mind first when talking about exotic investments.
The question is: Is this really an exotic investment and how do we even define an exotic investment? The exotic investment brings up the memories of the great Tulip Mania in Holland which died in 1637. Speculators paraded against the first stock back in the 1600s and here we are today looking at something which is bigger than that. Since the birth of Bitcoin in 2009 for half a cent, the price has in the meantime hit the high of $4477.
Worried about the crash? Learn from NASDAQ
The general consensus among the investment community is that the price is in a mammoth bubble territory and it would crash. After all, we have witnessed a number of crashes in the equity market since its birth. The NASDAQ, the blue-chip index, experienced a massive crash on the back of the tech bubble when it fell by 78% in the 30 months ending 2002.
The tech bubble pushed the NASDAQ to its knees
The market has not only recovered from that level in the preceding years but it has made record highs, and to date, it is up nearly 26%. Just to put things in perspective, the NASDAQ index is up 486% from its tech crash low. For every trader, the NASDAQ tech crash became the child poster case study for graduate school but the reality is that crashes do take place all the time and in all markets.
Why Crypto Is Here To Stay
Virtually every country in the world is after cryptocurrency . For illustrative purpose, there is more global audience force of attraction behind Bitcoin as compared to the largest stock market in the world, US.
There is a limited supply and the currency simply cannot be counterfeited. It is more than perfect for the new technological world. Consumers are shopping more on the internet and Bitcoin is competing with other currencies in this space. Given its massive popularity and availability across all continents, internet entrepreneurs are launching more products focused specifically on these markets. Consumers are switching from fiat money and banks to Bitcoin and this would only increase the demand.
Volatility is High but Not for Long
There is no denying that excessive up and down swings in Bitcoin is creating a lot of stir amid traders. Speculators are constantly moving in and out of their trades and this is one of the primary reasons that keep the volatility anchored. However, when you look at the recent price action, the price curve looks immensely anchored and this is primarily due to the capital inflow from Korea and Japan. In May 2017, the New York Agreement was declared with the intention to tackle the technical and political roadmap governance affairs. Australia is also set to regulate the virtual currency exchanges and this would result in more transparency and power for the Australian Financial Intelligence Agency.
Over time, we are going to get more products such as futures, ETF, options due to high demand and that would make the price more stable.
Important Events To Look Out
For this month, we are up nearly 64% and the race towards the 5000 mark is on. Potentially there are two important events that you want to keep a close eye on. Firstly, on the 22nd of August SegWit, the technological innovation would be put to test to carry out the first real world Bitcoin SegWit transaction. If all goes according to the plan, it would spur more confidence and it is more likely to attract new capital. On November 22nd, it will be nearly three months that SegWit will be activated and the New York Agreement road map has planned a Bitcoin hard fork which would result in double the block size.
Bitcoin is in high demand despite higher volatility
How To Add and Handle Bitcoin Volatility In Portfolio
Diversification is the key to success and risk management is the door. Investors often make mistake by dedicating their full capital on one specific product as this opens them up to more risk. Higher volatility in Bitcoin does not mean that it cannot be part of the investment portfolio. The strategy which is famous in adopting the volatility in your portfolio is called volatility targeting/scaling on the ongoing basis. The S&P 500 index is a well-diversified index and hence the volatility is much lower. In order to add Bitcoin in your portfolio, look at the percentage volatility of the S&P 500 and add the same percentage capital worth of Bitcoin to the portfolio.
How High Can Price Go? 619,047 per Bitcoin
There are total 20999999.9769 BTC or in simple terms, there are nearly 21 million Bitcoins. Over the coming 10 years, if Bitcoin demand increases by only 4%, you take away away 4% that global demand value (World market capitalization value = 72.3 Trillion dollar + Professionally managed global real estate market = 7.4 trillion + Global Debt = 199 Trillion Dollar +MSCI All Country World Index Market Cap = 50.025 Trillion ), it gives you the price for each Bitcoin at $619,047. However, if the Bitcoin supply goes unlimited which is feasible, because in August we also had an event of forking which gave birth to Bitcoin cash, things would change substantially. The value of new Bitcoin cash for now is approximately $5bn. If the supply is not limited, the core foundation of cryptocurrency would shift and it a number of elements would come on par with central bank’s currencies.
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Credit: Forbes