This article was written for Investing.com only
- Wild December and January for the leader of the digital currency asset class
- Meaningless price forecasts by analysts
- Lost passwords and lost millions
- Custody and gravity are powerful forces
I’m a Bitcoin and digital currency fan, but I’m also a beginner when it comes to this new asset class.
The global nature of the currency appeals to my liberal bias. If governments did a reasonable job of managing funds and the money supply, there would be no reason for the cryptos. Unfortunately, they are not, and the situation is getting worse. As the US deficit swells to the $ 30 trillion level and impetus continues to come, the debate favoring the digital currency revolution becomes compelling.
But I’m also now in my sixth decade, so I can officially say I’m an old-school guy. Technology continues to confuse me at times. And while I consider myself essentially young, my mind is not the same as it was decades ago. One indication of this: I tend to forget passwords soon after I set them up and put them on a website.
So I had to smile in sympathy the day before when I read about newly minted Bitcoin millionaires losing access to their newly minted profits – and constantly rising – because of exactly the same problem: a memory bug that caused them to forget their crypto wallet passwords.
Here are a few simple things to know about Bitcoin and precautions to help avoid those and other risks.
Wild December and January for the leader of the digital currency asset class
When other asset prices fell in March 2020, it retreated to a minimum of $ 4,210 per ticket. The price was nearly one-fifth of the level at the end of 2017 high when the asset class’s market cap reached over $ 800 billion. In 2019, Bitcoin rose to a lower peak of $ 13,915.
Like the monthly chart of highlights, the price moved above the 2019 peak in November.
The upside technical break illuminated an explosive game beneath the cryptocurrency. At the beginning of 2021, the price reached the $ 42,730 level and was trading at over $ 36,000 per ticket at the end of last week. The asset class’s market cap was nearly to the $ 1 trillion level.
Meaningless price forecasts by analysts
Everyone loves a bull market. Now, many pundits write that Bitcoin is the new gold and that investors are fleeing the yellow metal for the obscure digital tokens.
Bitcoin has gotten plenty of distraction over the years. Warren Buffett once called in Bitcoin “poison poison squareIn 2018. His partner Charlie Munger said he was “useless artificial goldThe same year. Jamie Dimon, CEO of JP Morgan Chase, called Bitcoin “fraud”In 2017. So far, they have all been wrong.
Meanwhile, the cryptoasset frenzy has even hit the global investment bank run by Mr. Dimon. At the beginning of 2021, an analyst from JP Morgan Chase said Bitcoin had the potential to reach $ 146,000.
I find that statement as skeptical as those made in 2017. The $ 146,000 level seems to have been chosen from the air. Analysts have models that compare the digital currency market cap with other competing assets, which validate their predictions. I pay no heed to those calls and consider them, as Mr Munger would say, useless.
Markets tend to go much higher than anyone thinks is possible during bullish times and much lower than even the most dedicated bear thinks during price carnage. If in doubt, just take a look at the futures market, which moved to a negative $ 40.32 on April 20, 2020.
Lost passwords and lost millions
There are many reports that they have lost millions, if not billions, by people who simply forget their digital keys or passwords for their Bitcoin or other crypto wallets. A piece on PCGAMER reports a computer programmer’s loss of 7,002 Bitcoins worth about a quarter of a billion dollars because he forgot his password. If a programmer is facing this problem, what chance does a crypto neophyte like me have?
An article in the New York Times last week estimates that of 18.5 million Bitcoins, 20% are lost in stuck wallets. There are methods of retrieval when we lose passwords for a bank, investment, or other types of accounts. With Bitcoins in private wallets however, those who lose the keys wind up being the biggest losers.
When I did a Google search for the question, “what happens if I lose my Bitcoin private key, ‘the answer is:”If you forget your private key, there is no way to regain access. ”
Custody and gravity are powerful forces
So if you choose to invest in Bitcoin, or other cryptocurrency for that matter, and choose to store it in a private wallet, write down your key and keep it in a safe place. Make copies and put those in a safe.
Alternatively, some online exchanges can store the cryptos, but there are risks. Coinbase is an exchange that holds nearly 99% of its assets in cold offline storage that cannot be accessed or hacked. Other online exchanges offer similar storage services. For the digital money market to mature, custody is the critical issue. Meanwhile, cryptonews provides valuable tips for the secure storage of cryptocurrencies.
Keep records of your digital cash savings and store them securely. Custody is still the main issue for me and many others, whether you tend to forget passwords or not. Saving cryptoassets on your computer increases the risk of a hack. An old-school mentality in this digital money world is a disability.
When it comes to investing in Bitcoin and the other digital currencies, it’s hard to call in which direction any of them will go next. One thing’s for sure, expect volatility.
The takeaway is that digital currencies are markets. And like all markets, risk arises during parabolic movements.
Whether Bitcoin peaks at $ 42,730, or whether the current explosive rally will find a peak at double, triple, quadruple that level or more, gravity will eventually cause a massive correction. Protect against losing access to those tickets, but you also have an exit plan for price risk.