Let’s clear the air on bitcoin and blockchain
Bitcoin’s recent price surge after a five-month low is just the latest reminder that when an investor includes digital currencies in their portfolio, they sign on for whiplash-inducing schizophrenia.
Most analysts attribute bitcoin’s 15% price hike in October to news that China may ease its strict cryptocurrency and blockchain policies first enacted in 2017. Right on cue, financial pundits reacted with sunny forecasts ahead for bitcoin and many other popular cryptocurrencies.
Yet only a month earlier, investors were greeted with much more circumspect analysis, questioning whether bitcoin was “dead.” For the record, this marked nearly the 400th time a bitcoin obituary has been published in almost a decade.
All the zigging and zagging news — despite BTC’s slow and steady 10-year climb — says a lot more about the overall anxiety and confusion that continues to surround cryptocurrencies than it does about any coin’s sustainability.
Granted, it is easy to understand why investors might be feeling anxious when surveying the current landscape. Despite the recent surge, bitcoin has had a pretty sluggish year. And overall, investments in crypto and blockchain projects are down significantly when compared to last year.
Recent regulatory actions haven’t done much to quell investor angst either. Quite the contrary.
In October, the IRS announced long-overdue new tax guidelines for cryptocurrencies. However, most investors found these new guidelines simultaneously clarifying, confusing, upbeat and disheartening.
Also, when the SEC recently shot down proposed plans to launch a bitcoin exchange-traded fund, many treated it as another step back on the road to mainstream acceptance for digital currencies.
Despite these speed bumps, cryptocurrencies continue to move forward. There are more than 2,500 digital currencies for investors to choose from.
Not all of these are worthy of consideration. Many operate in the murkiest corners of the internet and deserve skepticism. Even bitcoin, despite its brand recognition, is still the currency of choice for many cybercriminals.
But there are many lesser known, strategically managed digital currencies that offer genuine value. However, like every volatile investment, any of these could plummet or skyrocket at any moment.
This is the nature of investing. Good news and bad news tend to get amplified while slow, steady performance is taken for granted or even treated as a negative.
There is a similar trend with blockchain technologies.
According to a new Gartner study, the much-anticipated blockchain revolution will likely be postponed. The research firm determined blockchain — the digital ledgers supporting most cryptocurrencies — is just the latest victim of Gartner’s annual “Hype Cycle.” As such, blockchain’s “honeymoon” is officially over and now the industry must wallow through “the Trough of Disillusionment.”
This may sound like a grim prognosis. And it was certainly perceived that way by blockchain skeptics who saw Gartner's conclusion as validation. As a result, some likely passed over Gartner’s next conclusion: The blockchain “market will begin to climb out of this Trough by 2021, as the technology advances and pragmatic use cases uniquely supported by blockchain continue to roll out.”
If blockchain is in a trough, it isn’t a very deep one. Corporations and governments are on track to spend nearly $3 billion on blockchain this year alone.
Mixed messages, bleak postmortems and overly sunny forecasts should now be treated as an inevitable part of any new technology cycle. Most seasoned investors recognize this and they’ve learned to roll with the proverbial punches.
Neither cryptocurrencies nor blockchain can be considered new. Both are firmly established. In the last decade, both have been dismissed as scams and frauds, often by the same people who later championed the technologies.
Cryptocurrencies and blockchain technologies are here to stay. The fact that regulators are trying to shape policies confirms this. In other words, the many reports regarding the death of bitcoin have been greatly exaggerated.