Investors Beware, Cryptocurrencies Ahead

Investors interested in cryptocurrencies should beware of the 20% drop of Ripple, an alternative to Bitcoin.

Observers increasingly are questioning the value of various cryptocurrencies, and the 20% plunge in Ripple on Jan. 8 shows that significant risk exists. Those who seek to profit quickly by investing in cryptocurrencies need to do so with caution.

Because of the significant price drop, Ripple’s market capitalization fell below $100 billion and dropped the cryptocurrency down to third place in terms of market capitalization. Bitcoin leads the cryptocurrencies with a market capitalization of approximately $250 billion and Ethereum – with a $120 billion market capitalization – moved into second place because of Ripple’s price drop.

The cryptocurrency market gained more prominence in mainstream investing circles throughout 2017. Most of the early adopters have seen enough asset appreciation to confirm their entry into cryptocurrencies as a wise investing decision. Some investors are deciding to hold their positions and other investors are cashing out of the cryptocurrency market – especially in Bitcoin after it recently reached $19,000-plus.

However, new investors must be careful to understand cryptocurrencies before entering the market. There are still a lot of unanswered questions regarding functions of a cryptocurrency. Are cryptocurrencies real currencies in the traditional sense – like commodity-backed currencies that store value, units of account and mediums of exchange? Are cryptocurrencies just forms of payment, like PayPal? Or, is the real value behind cryptocurrencies the blockchain technology that could have vastly diverse uses beyond currency and transaction application.

Therefore, new investors who are considering entering the cryptocurrency market should consider all factors, such as the extreme volatility, whether current price levels are true representations of value or if it is a bubble created by the recent interest and influx of cash into the market that is driving demand much higher in a very short period.