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Interested In Bitcoin And Ethereum? Now Might Be The Best Time To Invest Long Term



Bitcoin and Ethereum
Bitcoin and Ethereum (Flickr)

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. 

READ ALSO: Market Watch: 10 DeFi Tokens To Watch In 2020

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.

READ ALSO: Cryptocurrency Staking Explained For Beginners

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.


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Learning Guides

Understanding Speculation and Crypto Volatility



Everyone who dabbles in the crypto industry learns almost immediately that the market is very volatile and oftentimes things can change very quickly. That volatility is the fundamental reason why some investors make absolutely stunning gains in so short a time and others lose a lot of money as well. Trading in crypto is one of the riskiest ventures any person can undertake and as they say, it’s not for the faint of heart. The risks can be mitigated of course and sometimes depends specifically on the coin or crypto asset being traded on, barring general market trends.

Nevertheless, to get to the bottom of the volatility concept, one must understand speculation in the market. To start off, the concept of speculation isn’t limited to cryptocurrencies, on the contrary, speculation has existed for as long as economics and trading has. But it is worth saying that speculation is often a feature of novel sectors, assets, commodities and the like. So, even though cryptocurrencies have been around for more than a decade, they’re still in their infancy as far as markets go. One could say that the market is still trying to find its feet.

One of the fundamental reasons why cryptocurrencies are so volatile is that they are fundamentally backed by nothing of value outside the attention that they get. Unlike many fiat currencies which are either pegged to another currency’s value or whose value is unilaterally determined by a central authority, cryptocurrencies only derive value as a function of how many people are willing to use is to transact, i.e. trust in the asset because other people trust it. As a rule of thumb, the larger the number of people who accept the asset, the more valuable it becomes.

This is one of the hallmarks of speculative trading. In the crypto world or in any market that’s novel and untested, many people are in it to win it which means their strategies in trade has the objective of making as much profits as possible in the short term. Therefore, the market enters a subtly dangerous cycle of rapidly changing prices of assets. Basically, investors typically buy assets when prices are low and wait. As more investors are attracted to the commodity for its low prices, it sets off a cascade where more people buy in, causing the price to steadily rise. 

However, all good things must come to an end and it almost always gets to a breaking point whereupon the price gets high enough for investors to begin to sell. This reverses the earlier cascade and as more and more investors pull out, the prices can fall dramatically causing even more to sell off in fear of losing whatever investments they have left. The prices having fallen resets the game and primes investors to begin buying again.

Volatility has been one of the talking points of many critics of cryptocurrencies often comparing it to a Ponzi scheme. And in certain cases, persons of interest with large pulls and audiences can substantially affect the rate at which prices rise and fall. Other factors include government regulations. Volatility at its core reflects the often chaotic nature of trade and market interactions and human hopes and fears.


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Market Watch

What China’s crypto clampdown means for investors



Over the weekend, China, the biggest crypto mining country once again, began to clamp down on cryptocurrency. Ten Chinese agencies including the central bank and banking, securities and foreign exchange regulators have vowed to work hand in hand to expose illegal cryptocurrency activity.

China has always placed stricter rules on cryptocurrencies but the new rule has made all crypto-related activities illegal. According to the People’s Bank of China (PBOC), it is illegal to cryptocurrency trading and anyone that does so will be severely punished; this includes those within China that are working for overseas platforms. To fully phase out the cryptocurrency mining sector, the National Development and Reform Council (NDRC) said that it would launch a nationwide crackdown on cryptocurrency.

Over the years, China does not recognize cryptocurrency as a legal tender. In 2013, the Chinese government referred to Bitcoin as a virtual commodity that individuals are allowed to freely participate in. This freedom, however, precludes banks and payment companies from providing services that are Bitcoin related.

In 2017, Initial Coin Offering (ICO) was banned. The ban was also extended to the conversion of legal tenders to cryptocurrencies by trading platforms which led most of the platforms to shut down operations in China. The crackdown led 88 trading platforms and 85 ICO platforms to withdraw from the market as of July 2018.

To China, the crackdown on cryptocurrency is necessary as the country is trying to launch its official digital currency and the need to fulfil its 2060 climate targets. The crackdown was necessary as cryptocurrency was seen as infringing on people’s properties and ‘disrupting the normal economic order.’

The statement by PBOC on Friday was unequivocal as the current crackdown is distinct from the previous ones. In his statement on Friday, PBOC called Bitcoin, Ether and Tether ‘legally irreparable’ and should not be used. The new regulations forbid financial institutions, marketing and IT providers from supporting crypto-related activities. The activities of both crypto holders and miners are now considered illegal. This is what Henri Arslanian, a PwC crypto leader termed as “No ambiguity. No room for discussion. No grey areas” in his tweet.  

What does this mean for crypto holders worldwide?

The major effect of China’s crackdown on cryptocurrency is the increase in price volatility. While volatility is a common phenomenon in the crypto world, a crackdown initiated by the world biggest cryptocurrency mining country will have a huge effect on market price.    

After the PBOC interview, Bitcoin fell by 4% within 24 hours and is currently trading at $43,320. Ethereum fell by 6% and it is currently trading at $3,036. With the Evergrande debt crisis and the huge blow bedevilling the crypto market, a clampdown by China would most likely keep the market price on the red until another good news crops up.


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Crypto Assets

Crypto prices drop as global market fear increases



Top cryptocurrency prices have fallen amidst a drop in stocks and fears over China’s Evergrande debt crisis. In the last 24hour, Bitcoin dropped from $47,772 to $42,630 shedding about 8.58%. this is the lowest in price since another bull run began on Sept 5 after the April crash.

El- Salvador’s President, Nayib Bukele sees the fall as an opportunity to invest more. Recall that the country adopted Bitcoin as a legal tender on September 7. Despite the adoption, the price of Bitcoin has fallen by almost 14% since then.

Other coins have experienced dramatic crashes within the last 24hours. Solana, a coin that has experienced 355% growth within the last 3 months fell from $162 to $130 shedding about 11.39% within the last 24hours. Solana’s fall may be categorized by the 17-hour outage which the founder, Anatoly Yakovenko said was caused by bots “flooding the networks”

Ethereum fell by 9.37% while Dogecoin and Axie Infinity fell by 11.22% and 14.14% respectively within the last 24hrs hours. While crypto experiences dark Monday, El-Salvador keeps investing more money in Bitcoin.

A look at the global market

The global market is experiencing fear due to the Evergrande debt crisis. A report published by the University of Michigan shows that consumer’s sentiment is beginning to decline. This trend alone may impact the crypto market as well.

On the other hand, the global market downturn must have been spurred by the Evergrande debt crisis. The company grew to be one of China’s biggest companies by borrowing more than $300bn. Last year, Beijing made rules to control the debt owed by big real estate developers. This led Evergrande to offer its properties at major discounts to raise more money to keep the business afloat. Right now, the company is struggling to meet the interest on payment of debts.

Why would it matter if Evergrande fails?

The collapse of the multi-million dollars company would affect the global market; including the crypto market. Many people bought properties from Evergrande and they expect to make gains. If Evergrande falls, crypto investors will be forced to withdraw more money to keep their business running without the means to invest more. When one business fails, the other gets affected indirectly. This also applies to other firms that do businesses with Evergrande.

The potential impact on China’s financial system is another effect of Evergrande’s fall. In his statement to BBC, Mattie Berkink, the Economist Intelligence Unit (EIU), said that “the financial fallout would be far-reaching. Evergrande reportedly owes money to around 171 domestic banks 121 other financial firms” if the company fails, other lenders or businesses may be forced to lend less. Thereby leading to a credit crunch- a situation where companies struggle to borrow money.


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