Even though the stock market continues to go higher, all the news this month seemed to focus on Bitcoin and the other kinds of cryptocurrencies and NFT’s. The crypto trading exchange Coinbase went public at an $85 billion dollar valuation so it does feel like a validation of cryptocurrencies as an asset class.
Are cryptocurrencies a worthwhile investment? I’m sure you’ve had friends or even a sibling or nephew touting the future of the blockchain and cryptocurrencies. You’ve probably also heard of everyday people getting rich quick like this guy who is now a millionaire from betting on Dogecoin. Dogecoin, for those unfamiliar, is a cryptocurrency created on a popular internet meme you may have seen before.
Its description on Coindesk literally says, “Dogecoin emerged in 2013 as a joke”. It now has a market cap of over $40 billion.
Unfortunately, the hype around crypto trading is distracting as there is no doubt the technology of the blockchain has the power to transform the way we transact business on the internet. This technology, along with the different currencies associated with the blockchain, also have the potential to change how people are compensated for work, fund projects, and create businesses. For those interested in learning more about the technology of the blockchain, I would start with Goldman Sachs’ interactive presentation from a few years back.
For those that have some background, you can take a deeper dive into what some of the future investment and business applications are for crypto and the blockchain from the Invest Like the Best podcast from this month. It is fascinating stuff.
That said, I would consider investing in cryptocurrencies as very speculative at this point. We’re still talking about a very new, unregulated (by design) asset class. The volatility is enough to make your stomach churn (it dropped by 15% in a day earlier last week). And a lot of the cases for Bitcoin as a currency such as security, scarcity, and convenience can actually be argued as being negatives.
So what does that mean for the future of crypto? Hard to say, but it’s almost too easy to compare this to the internet craze of the 90’s. Most of the promises of the internet actually turned out to be true. But for every company like Amazon that made it and ultimately transformed our lives, most did not survive the bust. Which coin or technology will be the Geocities, Pets.com, or Global Crossing of today? We’ll see.