Since the beginning of the year, Cryptocurrencies surge a lot. And this trend will continue in second quarter
This quarter, cryptocurrencies have been among the best-performing assets in the world. Bitcoin continues to trade above $5000 while Ethereum is trading above $150. Other currencies like Litecoin and Ripple have continued to do well. In total, the currencies are currently valued at more than $180 billion, which is more than the $120 billion where they started the year. There are many reasons for this.
3 reasons why Cryptocurrencies are surging
First, investors are using an old arbitrage strategy where they buy assets that underperformed during the previous year. This is an old strategy that has done significantly well in the past. Therefore, since the cryptocurrencies were the worst-performing asset classes in 2018, they have become ideal for the traders using this approach.
Second, it appears that investors are hoping that the various cryptocurrencies Exchange Traded Funds (ETFs) will be accepted by the Securities and Exchange Commission (SEC). At the beginning of the quarter, a rumor circulated in the market that the SEC had signaled that it will accept the ETF proposals. The consensus among the participants is that such approval will take the currencies higher. However, it’s still early days and there is a likelihood that the ETFs will not be accepted. Also, there’s a likelihood that the ETFs will not lead to the demand that has been predicted.
Third, there is a likelihood that there is market manipulation, which is intended to raise prices. While there is no evidence about this yet, it should not be ruled out because of how opaque the industry is. Also, a few companies and participants have been known to manipulate this market in the past. This is likely the case because there have been no major news in the industry to back the price.
Our consideration about this surge
Therefore, should you consider buying the currencies again? In our opinion, We believe you should just trade them. First, the real use-case of the currencies remains small. While Bitcoin can be used to make anonymous transactions, it has not been embraced by top retailers like Walmart, Amazon, and Target. If a currency cannot be used to make transactions, then, it cannot be called a real currency.
Second, the use case of other currencies like Ripple and Ethereum has been debunked. In fact, very few smart contract applications have been developed to take advantage of the ETH network. For Ripple, the use case has not been embraced by the world.
Third, the industry appears to be having low real demand. This is mostly because of the reasons explained above. As a further evidence of this, Chicago Board of Options Exchange (CBOE), has recently removed Bitcoin from their boards because of the lack of demand. Remember, when CBOE listed the currencies, it was promoted as a way of boosting demand as institutional investors get into the industry. Similarly, We believe that this demand will not be brought once the ETFs are listed.
Last but not least, the industry remains being opaque. For example, in the past, a few people have been known to manipulate the industry in what is known as a pump and dump scheme. Further, this opaque nature has made it impossible to track the real demand and supply of the currencies.
Therefore instead of being a long-term investor in the currencies, We recommend that you use the volatility to trade them. Using the Day Trade the World (DTTW) platform, it can help you make these trades.