This market is in permanent growth, its volatility and unpredictable liquidity are a reality.
The cryptocurrency market has been segmented into mining and transaction, based on the process. In the mining process, there is a greater necessity for hardware than it is a case in the transaction process. Therefore, the market for hardware for the mining process is larger than that for software. Furthermore, a miner can take part in this process with a small investment.
Cryptocurrency is used for various applications, such as trading, remittance, and payment. These applications drive the market for cryptocurrencies.
Trading the cryptocurrency market
Cryptocurrency trading cover exchanging fiat currency with crypto. Also, it refers to exchanging, buying, and selling of cryptocurrencies. It meets some similarities of foreign exchange or forex wherein fiat currencies we can trade 24 hours a day. The number of cryptocurrencies has increased exponentially; currently, there are more than 1,500 cryptocurrencies available. Some of these coins can only be vested using major cryptocurrencies such as Bitcoin or Ethereum. To contribute to initial coin offerings (ICOs), one needs to perform trades or use a blockchain company’s services.
A large number of players are investing in developing payment gateways and platforms for the payment process of their currencies. When a customer makes a purchase using a cryptocurrency as payment, the transaction often goes through the payment gateway at a fixed exchange rate. It automatically converts to traditionally recognized fiat currency so the merchant can avoid the volatility of the cryptocurrency markets. The payment through cryptocurrency has several advantages. Enhanced transactional security, protection from fraud, decentralized system, low fees, quick international transfers.
Why invest in the cryptocurrency market?
Volatility and unpredictable liquidity are a reality of the cryptocurrencies market. You could have made tons of money if you had invested in bitcoin earlier but you would’ve lost a lot of money if you had started investing in the last few months. Because when investing in cryptocurrencies, many traditional assumptions fall flat. Managing risk in financial markets is a well-established discipline. Whether investing in equities, bonds, or currencies usually practices protect market practitioners when they are buying, selling, or intimidating. Risks are typically aligned into different categories. Market risk, credit risk, and operational risk, and complex formula are used to determine how much capital should be kept in reserve to absorb losses. The historical progress in bitcoin has increased risk appetite both for existing and newer traders. It comes with the realization that even a small exposure to cryptocurrencies could turn out to be lucrative.
The cryptocurrencies market is still developing. There are concerns about the potential for fraud and market manipulation. So, investors must take the necessary precautions. These individual risks are much more difficult to measure and manage when investing in cryptocurrencies.
Institutional demand for digital currencies
So far, most institutional investors, including banks, insurance companies, pensions, and hedge funds, have avoided cryptocurrencies. But, that attitude is beginning to change and institutional investors will soon be entering the market in a major way.
This year (2018) has been challenging for crypto investors. Global market capitalization fell amidst worries over fraud risk, escalating token issuance, and ever-shifting cyber-security threats. Accusations of market manipulation and concerns around potential naked short selling are also doing little to lessen institutional investors’ concerns about cryptocurrencies.
The effect in the market
Every big trader can exploit market illiquidity and shifting margin rules and contract limits at inexperienced cryptocurrencies exchanges. This causes a domino effect in the market and institutional investors rather stay away. The complexities and shy institutional uptake for the new cash-settled bitcoin futures products demonstrate that. But the industry must move towards a futures contract that is settled with proper warehousing standards.
Counterparty risk and custody provisions are even bigger worries for institutional investors. Although cryptocurrency exchanges are significant new platforms, they have been largely designed by the younger generation of developers. Financial institutions care more about the return of capital rather than return on capital. They are wary of the professional indemnity behind these platforms. We believe that now’s the right time for institutional investors to look seriously at making investments into cryptocurrencies. They should take part in the cryptocurrencies market.
Cryptocurrency market – potentially unlimited upside
The unpredictability of risk and the potential for high returns is the main characteristic of cryptocurrencies market. The most intelligent approach for new investors might be to hold a very small proportion of their portfolio in cryptocurrencies. This would give some exposure without excessive risk as the market continues to mature.
By the end of 2017, a lot of portfolio managers had to explain to their clients why they had only achieved single-digit returns in traditional asset classes. At the same time, some crypto funds had earned up to 2,000 percent from volatility. This shows, there is a little downside from investing 1% of the portfolio in cryptocurrencies, but the potential upside is almost unlimited.
The cryptocurrency market continues to attract new participants and liquidity should improve. This will take the time that’s the truth. Within a couple of years, cryptocurrencies will become a standard part of a diversified portfolio.
The stock market has a rich and mature history. It has seen many bubbles, market crashes, and economic recoveries. The growth of the cryptocurrencies market continues. If traditional stock exchanges continue to keep away from cryptocurrencies, they’ll miss out on a growing and profitable market.
Finally, the financial crisis of 2008 actually gave birth to Bitcoin.