In 2013, then-Federal Reserve Chair Ben Bernanke wrote a letter to Congress in which he said, “Virtual currencies may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system.” 2017 gave rise to an entire ecosystem of companies doing exactly that, and the result has been exponential growth in the sector. The world of cryptocurrency is moving into 2018 with more energy than ever, especially now that such expert predictions have started to manifest.
The excitement around Bitcoin’s price escalation and futures trading has generated significant interest amongst new users; people who knew nothing about cryptocurrency a month ago are scrambling to learn everything they can to begin investing, but the learning curve can be daunting.
Hate spammy ICOs and crappy cryptocurrencies?
So do we.
Whether you’re a complete newbie to the crypto scene or a veteran investor seeking to maximize your returns, there are several things you need to know about cryptocurrency moving into the new year.
One of the most important trends you’ll notice in the crypto sphere is a transition away from central security and into client-side security, since 2017 was the year of cybersecurity incidents. There have been numerous, costly hacks in virtually every market, and users are becoming increasingly aware of the importance of securing their personal data and assets. In the crypto market, consumers are trending toward a preference for decentralized exchanges and storage options.
“The cutting-edge of security is defined by companies that return control to users and eliminate costly security incidents,” explains Paul Puey, founder and CEO of Edge. Their crypto wallet avoids storing user data on a centralized server, instead encrypting data on the user’s own device. Increasingly savvy consumers recognize that despite crypto’s general reputation for security, not all systems are created equal.
Anyone entering the crypto market in 2018 should take care to understand the various security options available to them and make security features a top priority when investing. Security is especially critical when selecting your wallet; the key is to securely store your funds while keeping them available for trading, selling, and using for transactions. The best mobile wallets are generally those which securely store your funds while providing easy access to monitor and manage your assets. Again, 2018 will see a trend toward consumer demand for personal control over their cryptocurrency funds.
In addition to security concerns and solutions being a running theme in 2018, expect to see a variety of changes to cryptocurrency regulations as the market value of several currencies — like Bitcoin, Ripple, Ethereum, and Monero — continues to climb. Ripple, for example, is trading at $1.34 per coin as I write these words and has the third highest market cap in the cryptocurrency market. Other coins, like Ethereum and Monero, are being hailed for their practical applications and significant investment potential.
As cryptocurrency continues to gain traction, the regulatory environments of different countries will impact their price and performance. If major industry players like the US, China, India, Japan, and South Korea were to open up new ways for cryptocurrencies to be traded — like the recent announcements regarding futures trading in the US — prices are likely to spike. If any of them crack down on a particular currency or aspect of the market, however, that may have a negative effect on price.
While it’s impossible to predict with any real accuracy exactly which twists and turns the market may take, investors should keep a steady eye on changes in the regulatory environment, as they have significant implications for your investment.
And speaking of investment, another key component of cryptocurrency trading that bears mention is the impact of taxes. One of the reasons people are attracted to investment opportunities in crypto is to cultivate a less regulated investment opportunity, which makes sense. If you decided to cash out your 401k today, for example, you’d be penalized heavily, but investments in Bitcoin and other cryptocurrencies can be much more flexible, easily liquidated assets.
Nevertheless, you have to prepare for paying off Uncle Sam when you’re strategizing your crypto investments. If you plan to buy and hold in an attempt to capitalize on crypto’s steady growth, the question of taxes will be less of a concern for your strategy; but if you plan on trading currencies for fast returns, you’ll need to track everything carefully and be prepared for potentially hefty capital gains taxes. While you don’t have to be an expert in the market to get in on the action, it doesn’t hurt to seek the counsel of experienced advisors who can help you maximize your tax strategy.
Finally, no mention of a 2018 crypto investment strategy would be complete without a word on ICOs: unlike traditional stocks, investors have little recourse if an ICO tanks. Understand that first and foremost before making any investment moves.
Beyond that, it’s critical for ICO investors to obtain a detailed and accurate picture of the company before investing — is the proposition solid? Is the leadership trustworthy? Is the platform decentralized? ICOs can easily sound enticing because they’re based on secure and promising technology of the blockchain, but with so many hitting the market to great success it can be all too easy to get caught up in the feeding frenzy and make rash investment decisions.
A good rule of thumb is to invest in ICOs tied to industries you know and understand, which can help you have a firmer grasp on the technology and its potential to impact the market. “We’ve been investing in cryptocurrencies for years now. It’s important to make sure you understand the technology, the team, and the tactics that each company plans to execute in order to accomplish their big goals,” explains Da Phakousonh, cofounder of Fluffr.io. “We study every detail of the business when looking at different investments. Our own token is used as a utility to enable users to buy real products. They’re incentivized after using our augmented reality applications, which we have dubbed proof of engagement. It provides a deeper integrated interaction for our partners, and provides users the ability to earn real money. For anyone researching us, it will make tons of sense.”
Maintaining a critical eye toward the investment’s growth potential — as you would with any other type of stock — is part of your due diligence as an investor. Admittedly, there’s a lot to keep up with in the dynamic world of cryptocurrency, but the cryptocurrency investment opportunity appears to be here to stay.
Despite detractors claiming these currencies don’t hold any intrinsic value, it’s clear that markets and institutional investors think otherwise. As Richard Branson famously said in response to whether Bitcoin would become a mainstream currency, “there will be other currencies like it that may be even better.”
The question is — will you be prepared to cash in on it?
This post is part of our contributor series. The views expressed are the author's own and not necessarily shared by TNW.