Bitcoin (BTC) has been a target of mainstream investors for about two years at this point, although the digital currency leader has been in existence for more like a decade. During the past two years or so, and thanks in large part to the tremendous popularity of BTC, cryptocurrencies in general have skyrocketed in number and in popularity.
Investors have moved from looking for a quick buck off of the rapid rise and fall of coins to considering tokens as more of a long-term investment—and every position in between. While the cryptocurrency industry is still relatively young, with the scene changing all the time, more and more investors are able to look at trends that seem to govern or reflect the space. Initially, an investor could have reasonably suspected that one or more of these trends were anomalies, writing them off as a result of a new industry and all of its unknowns. However, as time goes on, these patterns seem increasingly to be enduring features of the digital currency system.
The Difficulty of Valuation
One of the most confounding parts of investing in digital currencies lies in the process of valuation. Early on in the cryptocurrency scene, investors faced so many variables and unknowns that reasonable valuation was difficult at best. Now, that there is more price history to study, it is clear that valuation is not necessarily getting easier. One need only observe the dramatic rise and fall in price for leading digital currencies like BTC over the past year. Further, even expert analysts don't know the best way to classify or predict cryptocurrency prices. It seems that experts are evenly divided between calling for astronomical valuations and predicting that the market will become essentially defunct. All of this means that, for the everyday investor, there remains a fair degree of guessing and luck involved in cryptocurrency trading.
Generally speaking, liquidity is low for leading cryptos like bitcoin. At the same time, though, according to Zycrypto, BTC's bid-ask spread does tend to be larger compared against other digital tokens, although it varies considerably. Further, this aspect can differ significantly between exchanges. Overall, fees have gone down for bitcoin trades over the past couple of years. Still, fees and transaction processing times are highly variable as well, even as the cryptocurrency industry has begun to mature, meaning that these are additional variables that investors must take into account when trading.
Extreme Volatility Continues
Early on, one could imagine that extreme levels of volatility in the digital currency space could be attributed to its newness. Now, it's more and more difficult to argue the case. Volatility remains a major issue for digital currencies. In a three-hour period just days before this report was written, for instance, bitcoin's price jumped 4%. Investors tend to react dramatically to news about the cryptocurrency space, with prices rising or falling accordingly.
Volatility could be one of the major hurdles preventing digital currencies from truly taking off in the world of traditional business. Amazon.com Inc. (AMZN), one of the most prominent e-commerce companies in the world, has reportedly hesitated from considering accepting bitcoin payments because of volatility. With the price of the digital currency changing all the time, it would be very difficult to ensure that customers know how much they're paying, to say nothing of the difficulty of returns and exchanges over the platform.
Digital currencies are by no means stable as a group. With each new day, developments are taking place in terms of regulation, investor opinion and even the range of tokens available. So long as this remains the case, it's likely that some aspects of the industry will remain enigmatic.