Why are Cryptocurrencies a Price Rollercoaster?

Welcome to the crazy world of cryptocurrencies and their insane price rollercoaster. It will seem absurd to many that the price can be so volatile or that they are even worth anything at all. I remember seeing the price of one single Bitcoin hit the $20,000 mark and it was a weird day. You see, I was buying Bitcoin in the hundreds of dollars. The low hundreds of dollars for most of them! And a few years later, they were sitting in the tens of thousands, each!

They have made me money that most could only dream of, and yet, I was not ecstatic or overjoyed. I understand that the price is fickle and is purely based on the psychology of the markets at any given time. These very markets are cyclical like all markets that are controlled by humans. The price goes up, and the price goes down like a rollercoaster based on people’s attitude, mood, and thought at the time.

I got in with a plan and I will be exiting with a plan. The time to exit is not yet!

The reason for me being so calm overall during the price surge of December 2017 is because I did not invest more than I can lose! Yes, that is right, I did not remortgage the house or sell my first unborn son for Bitcoin. It is true that the value of my crypto portfolio hit six figures, but I was accepting of the fact that I got in with a plan and I will be exiting with a plan. The time to exit is not yet!

Before I continue, I must warn you that cryptocurrencies are still a fairly new asset class and are still extremely volatile in price. The following is not investment advice and is purely my own opinion and experience. If you lose your house, wife, dog, or cat; it is not my fault! With that in mind, let’s continue…

In its simplest form, what is a currency? It is simply a means of exchange and a store of value. People argue that cryptocurrencies are abstract, but so too are normal currencies. They only work if there is enough adoption and belief in the system. The dollar works because people believe in it. Nothing more. If Bitcoin gains enough adoption and enough people believe in the system and use it, then it too becomes a currency. Anything can be a currency if people use it as such. Seashells and sticks were once used as currencies in the past before we had governments and banks.

We all trade our time and effort for money, which we earn from a job, business, investment, etc. Before cryptocurrencies came screaming onto the scene, we had only fiat currencies, which are backed by governments. You can argue the pros and cons of a currency that is controlled by one central authority, but you no longer need to as we now have decentralized currencies, such as Bitcoin!

Although an imperfect solution, fiat currencies, and banking have to a point served us well so far. Yes, there has been hardship along the way with currencies being devalued and run into the ground by government mismanagement, but overall, fiat currencies have allowed us to progress as a species. They have allowed us to manage and allocate resources and push society forward to the point that we are at today. And I must say life is pretty sweet in a first world country!

The issue is when it is mismanaged, it can cause mass hardship for the people who use, live, and need the currency. You only need to look at the financial crisis of 2008, which was the worst economic disaster since 1929. Banks and government regulators failed to notice this massive storm, and there were hardship and leaner, meaner times for all!

Everything and everyone has a lifespan.

Yet that is nothing but a tea party compared to the situation in Venezuela and Zimbabwe, where their currency is literally worthless due to it being run into the ground by their governments. So, in summary, no government currency is invincible, and every currency has a lifespan. Whether they die in ten years, one hundred or more, the end is inevitable, and all currencies will die. Everything and everyone has a lifespan.

In 2009, only one year after the financial nightmare of 2008, Bitcoin was born. It was a new type of currency. An internet currency for the internet age. A currency that doesn’t need a middleman like a bank or a government. It is decentralized much like the internet itself. Why does the internet work so well? Because it is decentralized and cannot be controlled and censored. The internet is lightning fast, interactive, and anyone can share and contribute information easily. Compare this to something old and boring like a newspaper, and you can see why the internet is superior. Newspapers are for old people!

A Joe Bloggs like myself can start a website or internet-based application and share it with the world easily and cheaply. The internet is like a serial killer, and it is murdering and decimating industries left, right, and center as it is leaner, meaner, and a ruthlessly efficient way of doing business. Thanks to the internet, we have cryptocurrencies! Without a decentralized internet, we would not have a decentralized cryptocurrency.

What a time to be alive!

Much like the internet, cryptocurrencies work on a worldwide scale effortlessly. They operate as a truly global payment network. Before the birth of Bitcoin, this was impossible. You can now transact and do business on a truly worldwide scale if you wish and all you need is an internet connection and some cryptocurrencies. What a time to be alive!

Cryptocurrencies have been improving and innovating on a massive scale as they get easier and faster to use. As people have woken their eyes up to this fact, we have seen people speculating and buying up Bitcoin and alternative coins (Altcoins), which are competitors to Bitcoin. As a result, we have seen massive price increases over time as user adoption picks up and supply and demand kicks in. This supply and demand is fickle as most people do not know the true value of Bitcoin and altcoins as they are still new and exotic.

This is price discovery in action, and we have seen the price of cryptocurrencies swing up and down like mad. There are times of pure euphoria and greed where we see the price hit the sky! And there are times of pure woe and despair where we see the price drop massively. This has happened with many other new, exotic, and exciting asset classes in the past.

The price should level out over time as user adoption kicks in and the technology gets easier to use. Cryptocurrencies are still new and are much like the internet back in the 56k modem days. Slow, expensive, clunky, not grandma and grandpa friendly. All of this must change for cryptocurrencies to take off. The question is if or when?

Obviously, no one can answer that question as no one can predict the future. But we only need to ask ourselves a few questions!

  • Is there demand for a worldwide payments network and currency?
  • Is there demand for a payments network and currency that is automated and operates 24/7 with no political or physical borders?
  • Is there demand for a currency that cannot be devalued or run in the ground by a central authority?
  • Is there demand for a payment network that can be used and built upon with no permission needed (much like I do not need permission to run and operate this website)?

Bitcoin and its competitor cryptocurrencies could very well be the answer to the above. I would warn anyone who does not know what a cryptocurrency is, or someone who is simply following the crowd in a “FOMO” phenomenon to simply sell or not buy. You must accept that these are an extremely volatile asset class. As the old saying goes, “Rome was not built in one day,” and cryptocurrencies will take time to develop and mature.

Personally, I have put my money where my mouth is and think there is a bright future for cryptocurrencies. Now is as good a time as any to buy. As the saying goes, “the time to buy is when there’s blood in the streets.” You see, if you are a long-term believer in cryptocurrencies, you will be confident in your speculation, and this rollercoaster will not phase you. You will hold and patiently wait for the technology to mature and the industry to grow.

Just like when Christopher Columbus discovered the Americas, he set off to sail and discover a new land. He has come to symbolize the bridge between the “New World” and the “Old World.” Will cryptocurrencies become a symbol and token between the old financial world and the new? Only time and patience will tell.

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