In early 2019, we’re going to hear a lot about cryptocurrency investment. Following what can only described as a disastrous year in 2018, cryptocurrencies are down. However, because many still believe in their long-term potential, this is going to be widely viewed as more of an opportunity than anything else. That is, there will be a lot of advice out there to invest in cryptocurrency now before it has the chance to leap up in price again.
It could well be that this winds up being a profitable strategy. After all, bitcoin and other cryptocurrencies have made millionaires (and almost certainly billionaires), and investing during a dip can certainly pay off. For a few words of caution though, we’d also argue that there are some reasons to view crypto as a very risky market, not just for 2019 but in general.
1. The Gold Comparison Is Faulty
Pros and cons of investing in gold
have been debated for decades, and will likely continue to be discussed well into the future. When people compare cryptocurrency to gold, however, they tend to focus only on some of the perceived positives – namely, that gold is a “safe haven” of sorts. The thinking is that investors turn to gold because of its reliable history and universal status when conventional markets plunge. This has proven true at times, but those expecting cryptocurrency to act the same way have essentially seen proof to the contrary in the last few months. Particularly in the U.S., a years-long bull market has taken a decisive downward turn, and cryptocurrency has seen no corresponding spike. For the most part, it continued to plunge. It’s still quite early, but for now we can safely say that cryptocurrency is not following the “haven” patterns gold sometimes exhibits.
2. Public Understanding Is Abysmal
If you follow cryptocurrency it probably seems as if people are getting aware, more currencies are getting more popular, and even low utility isn’t stopping people from learning more about the whole concept. None of this is the case however. Consider this: A British survey just a few months ago revealed that 93 percent of Brits have heard of bitcoin but only 4 percent said they understand bitcoin “very well.”
That is an astonishingly low number, and while it comes from a single poll in a particular country, it’s at least somewhat telling about cryptocurrency understanding around the world. Simply put, the vast majority of people still don’t get it, and as long as this remains the case investment will theoretically have something of a cap.
3. There’s A “Horse Race” Factor
The term “horse race” originates in horse race betting but is now frequently used to describe simple speculation about who or what will win a given contest. Actual horse race betting is conducted in various ways
today, but the basic idea is still to pick a horse, place some money behind it, and hope it’s faster than the rest. And while informed bettors can be right much of the time, there will eventually be a race in which the logical horse to bet on has a slow start, or gets an injury, or is inadvertently slowed by another horse, etc. That is to say, even a logical bet can be completely derailed by unpredictable elements. This is exactly what can happen in modern cryptocurrency investment. Experts, charts, and more can indicate that a given cryptocurrency is smart
to buy into at any given time, and any number of external factors can render the recommendation useless in an instant.
4. Experts Have Proven Clueless
We’re not talking about all of them all of the time. Plenty of people have been newly dubbed “cryptocurrency experts” specifically because they were able to make money on these fintech commodities, in fact. However, dozens of people the internet refers to as experts on the subject have made outlandish predictions, bullish and bearish alike, only to be proven wildly wrong. This doesn’t mean some aren’t better than others, nor that there won’t one day be a community of relatively reliable crypto advisors. For now though, the crypto market is so young and so volatile that we can safely say most so-called experts don’t have much more of a clue than the rest of us.