Bitcoin and Ethereum are arguably the most valuable digital currencies right now. And they control roughly 70% of the entire cryptocurrency market. Based on past historical data on CoinMarketCap, both Bitcoin and Ethereum are currently trading at a price below their all-time highs. In December 2017, during one of the strongest bull run witnessed in the market, both digital currencies surged to an unprecedented value, above $20,000 and $1000 respectively.
As at the time of writing this article, Bitcoin is currently trading within the range of $10,000 to $11,000 while the price of Ethereum is trading within the $300 to $400 range. In 2017, the was a strong euphoria and people feared missing out (FOMO), but on the contrary to what many investors who rushed in at a later stage, the preceding years – 2018 and 2019, the market saw massive plunge in pieces and many who bought in during those later stages of 2017, got burnt as a result of the crash. During which the crypto market saw a long bearish period.
However, in 2020, the crypto market, as indicated, has taken a new turn and we are seeing a spike in the prices of many cryptocurrencies. Unlike the previous bull run in 2017, the current increase has a lot of good indicators which we will be discussing in this article. Is this the right time to invest in Bitcoin or Ethereum? We will leave that decision for you to make after reading this article.
The Unprecedented Impact Of COVID-19
The advent of the COVID-19 pandemic has plunged almost every region of the world into a deep state of crisis. So many places, especially third world countries, are falling into an economic recession.
The financial market is currently in a turmoil due to the ongoing Covid-19 pandemic. As a result, foreign trade has been severely impacted.
As reported by Coindesk, Nigerians and many other Africans are using Bitcoin and other cryptocurrencies to bypass trades hurdles. In a similar report, a local newspaper, Daily Independent, also lent credence to this fact by linking the impact of the financial scourge to the scarcity of dollars in the country.
Secondly, the constant devaluation of African currencies such as the Nigerian Naira and Zimbabwe’s dollar, amongst others, is pushing its citizens to adopt these digital currencies as a means of hedging against the unstable nature of their respective local currencies. Hence the ongoing narrative: crypto is for savings, fiat is for spending.
Due to an increasing rate of unemployment on the continent, many Africans are intensifying their search for investment opportunities. As such, trading cryptocurrency is seen as a viable alternative, and it is starting to spread like wildfire in the region. With more interests in Bitcoin and Ethereum, this will, in turn, translate into more demand.
The State Of The Stock Market and Major Commodities
The year 2020 has been quite rough for stocks and many other commodities, largely due to the ongoing Covid-19 pandemic which has been ravaging literally every market. In March, 2020, the S&P 500 had its worst crash since 1987, owing to the fact that many businesses were forced to a compulsory shutdown. The trading of crude oil and some major commodities were also significantly affected. Such that, the price of US oil futures fell below $0 due to the critical drop in demand of the commodity.
Mainland shares in China equally crashed drastically, erasing over $3 trillion in value. Frequent stock and commodity crashes have led investors into searching for a safe haven investment. On the contrary, although the crypto market valuation also dropped when the pandemic started, prices have largely recovered.
Bitcoin And Ethereum Considered A Store Of Value
Bitcoin and gold have many similarities, and they are the trending topics in town. Both assets are divisible. Gold has been used as a store of value for thousands of years, but bitcoin came into existence just 11 years ago.
Central banks and governments have always stored gold as a reserve asset. Due to the incessant global economic crisis, governments diversify their currency by buying more gold as a reserve, thereby, reducing their reliance on the US dollar as a reserve asset.
While interest in gold is still as strong as before, such a commodity is not readily available to the average man. Bitcoin is often regarded as digital gold and it is already considered by many, as a better store of value than gold. Also, cryptocurrencies are already garnering massive interest from institutional and top individual investors.
Furthermore, companies are already diversifying their assets into bitcoin and top cryptocurrencies. A Billion Dollar US firm, MicroStrategy, on its verified twitter handle, announced that the company bought $250 million worth of Bitcoin as a primary treasury reserve asset. That’s a staggering 21,454 Bitcoins, or 0.1% of all the Bitcoins that will ever exist (21 million). This development is a testament to the fact that corporate businesses are starting to own bitcoin as marketable security.
In a similar move, Snappa, a graphic software company, confirmed a significant portion of the company’s overall cash reserves is in Bitcoin. According to the co-founder of Snappa, Christopher Gimmer: “The allocation itself represents 40% of our cash reserves.”
This development is a testament to the fact that corporate businesses are starting to own bitcoin as marketable security.
Should I Invest in Bitcoin or Ethereum?
Many are still skeptical about Bitcoin and Ethereum. Some people believe that it is too late to invest in these assets because their prices have skyrocketed over the years.
The popular narrative is that good tech should pass the 10 year rule. Bitcoin is already 11 years since it was invented – and it’s growing stronger like never before. It is still early to invest in Bitcoin and Ethereum because these crypto assets stand to capture value from diverse markets.
A study by Blockchain Capital indicates that cryptocurrencies are yet to hit their prime earning years. The study could mean two things: that the current value of these assets might only be a minute portion of what is to come when all the prospective investors join the bandwagon, or that this stage of the market is still considered an early one if one intends to invest in Bitcoin or Ethereum.
To illustrate, Gold has a market capitalization of around $9 trillion, whilst bitcoin and Ethereum have a capitalization of around $22.58 billion, with finite supply. As the interest continues to grow in cryptocurrencies, a large influx of capital is expected in this sector.
US Banks Can Now Provide Custody to Cryptocurrencies
This news is another great indicator. The United States Comptroller of Currency (OCC), in a letter, recently clarified that national banks have the authority to provide fiat bank accounts and cryptocurrency custodial services to cryptocurrency businesses. This move means more interest from large financial institutions and individual investors in cryptocurrency is expected.
With countries like the US granting banks access to cryptocurrencies, it is widely believed that many countries will follow suit, and make the same decision.
What more? Well, Every Market Has Some Risk, Same Applies for the Crypto Market.
It is true that investing in bitcoin and Ethereum at the moment, has a high probability of yielding good returns in the future.
However, it is vital that every investor understands that there are risks involved. Cryptocurrency and blockchain are still very young, and the prices of various cryptocurrencies are quite volatile. Bitcoin or Ethereum can add up to 10% value to its price within 24 hours, and equally lose as much, within the snap of a finger.
As such, it is expected that one should possess a basic understanding of how the market works, and equally develop a risk management plan to secure his or her capital.