Bitcoin has accelerated its pace of appreciation in recent months, and if the current levels between $15,000 and $19,000 make you itch for some of the action, you’re not alone.
Bitcoin’s pace has accelerated ever since the world’s largest derivatives exchanges announced that they plan to launch bitcoin futures contracts — on Dec. 10 at CBOE Global Markets and Dec. 17 at CME Group.
Will Bitcoin Reach $100,000?
Until now, most of the bitcoin trading involved currency spots and forwards; while the latter transaction includes the ability to bet on values going up or down, the timeframes involved are more limited than futures contracts.
Don’t expect the added types of bitcoin transactions to reduce volatility in this type of trading. Turbulence is par for the course with all cryptocurrencies — there are now hundreds of them in existence.
Sometimes it’s just cynicism by others in the investment community that has a negative effect on bitcoin’s value– like several of the world’s largest banks announcing on Dec. 7 that they want to prevent bitcoin futures from launching on exchanges. Where cryptocurrencies can trade and how they are regulated continues to be a work in progress, and that continues to keep the currencies volatile.
Although some say they think bitcoin might keep going even higher — possibly up to $100,000 within a year — the prudent move might be to keep watching how bitcoin’s value moves.
You might wait for it to descend to what might look like a trough and maybe try to buy at that time. Depending on when you’re reading this, you might be seeing a bit of a relative trough already.
Bitcoin fell more than 20% in a matter of hours from an intraday high of about $19,340 just on the day this article was written.
The velocity that bitcoin moves at invokes comparisons with small-cap stock options. One of the reasons why the value can plunge so quickly has to do with the relatively small size of cryptocurrency markets compared to other asset classes.
This is actually challenging for even professional investors to move around in. They find it difficult to take on a large position in markets of these size: Any move into or out of the currency is noticed by the rest of the market and they typically also move in the same direction. This has the result of amplifying the momentum of an upward or downward movement in the exchange rate, intensifying the volatility.
All of this also makes cryptocurrencies challenging for novice investors to do anything other than perhaps try to make a long-term investment — or simply watch the market and learn from its development.
Otherwise, if you rush into bitcoin trading with the attitude of a day trader — intending to move around a lot — you might get hurt, or at least get vertigo. Investing in bitcoin is not without risk. And what goes up quickly can also go down quickly. Investment professionals often compare the stock market to a casino, and the comparison also seems relevant to bitcoin.
Just like there’s no way to predict where a spin of the roulette wheel will end, it’s impossible to time the market. Anyone who boasts that they can is either lying or destined to fall into the hands of regulators — although the regulators are still trying to reach an agreement on how they plan to handle cryptocurrencies.
Readers, have you tried your hand at bitcoin — or are you wishing you did?
Jackie Cohen is an award winning financial journalist turned turned financial advisor obsessed with climate change risk, data and business. Jackie holds a B.A. Degree from Macalester College and an M.A. in English from Claremont Graduate University.