Cryptocurrency Craze: What's driving the rise?
SOUTH BEND, Ind. --- Gambling used to happen at the casino. But in 2020, at the height of the Coronavirus pandemic, casinos were forced to close their doors.
So where did people turn for the rush of a big win? The internet. Thousands of people downloaded commission-free trading apps like Robinhood or Coinbase.
Bitcoin has gone up nearly three hundred percent in value in 2020.
Joseph Cutler, a partner at Perkins Coie LLP, has been studying crypto trends for the last decade. He says social media is contributing to the rising popularity of cryptocurrency.
“If they’re doing it without understanding what it is they’re buying, I definitely think that the kind of risk that is associated with gambling exists,” Cutler said.
The power of memes has sent lesser known coins like Dogecoin pretty much ‘to the moon.’ The cryptocurrency was originally created as a joke but, the price of Dogecoin has risen almost twenty thousand percent from a year ago. Cutler calls this type of crypto trading a hysteria.
“Certainly as social influencer picks up a line on a coin and promote it, it can grow more speculative and move on these exchanges.”
Memes aside, Cutler thinks cryptocurrency is redefining the future of finance. But unlike an investment in a stock, there are no underlying fundamentals to support the valuation of any cryptocurrency.
“Cryptocurrency itself doesn’t have inherent value in that it’s not necessarily tied to some kind of asset, although it could be. It derives its value from markets that are used to exchange them for other forms of value.”
Digital coins are not backed by any physical assets the same way gold and silver prices are. Their price is driven by what investors are willing to pay. Investors like Guillermo Aguilera.
“Tiffany: are you aware that the majority of financial institutions don’t consider cryptocurrency to hold any monetary value, like it’s not real money?
Guillermo: Oh yea. Tiffany: That doesn’t scare you? Guillermo: No. Not at all.”
Aguilera has been trading cryptocurrency for four years now. Though he wouldn’t tell me how much money he’s made doing it, just know he’s been successful.
He’s even started hosting zoom meetings in Spanish, teaching more people how they can trade crypto and make money doing it.
“I’m doing Bitcoin, Ethereum, Binance Coin, and Ether Connect,” Aguilera said. “My goal is to make money.”
You can make money trading crypto currency. But, if cryptocurrencies aren’t hard assets or currencies, what are they?
Edwards Jones, a financial services company, defines it as a “speculative digital product built on blockchain technology.”
“I agree that cryptocurrencies are not tied directly to an asset but some of them are. There are gold-backed tokens, silver-backed tokens. Increasingly, the markets are getting stronger, as more people participate, they begin to hold their value in the same way that some national currencies or other forms of value that are not necessarily tied to a specific asset. These markets as they become diverse and strong, I think become stable.”
Crypto is an online representation of real value. If you’re considering trading crypto, you should know it is considered high-risk and volatile.
That isn’t scaring people, the vast majority young people, from buying crypto.
“I think young people are particularly attracted to things like crypto because it’s a way of bypassing traditional financial institutions. In fact, young people are doing this with lots of technologies. The advent of Venmo and PayPal and other kinds of movement of money.”
If you ask Cutler, cryptocurrency is the future. So, buying a few coins may not be such a bad idea.
“Blockchain technology will do to financial systems and the tracking of value what the internet did to communications. And if you think about what the internet did to things like telephones, television movies, pictures, video just imagine what blockchain could do for banking, remittance, and storing value.”
There are three things to know if you’re trading cryptocurrency. Cutler says don’t spend any more money than you’re willing to lose.
Number two: Do your research! Learn about what you’re buying and the technology that supports it.
And lastly, he doesn’t recommend always following trends or meme stocks. Make thoughtful purchases and you should see a return on your investment.