The quick 10% pullback in the Dow has opened the eyes of investors who had become accustomed to a consistent and gradual move higher. They had forgotten what it was like to experience a normal and healthy correction. But for those who invest in cryptocurrency, a double-digit gyration is typical daily trading.
Let me give you an example. I was looking at cryptocurrency prices around the middle of the day last Wednesday and saw the following: Bitcoin, the largest coin by market cap, was up 14.5% in the prior 24-hour period and NEO, the seventh largest, was up more than 24%. The least volatile cryptocurrency in the list of the top 10 largest had gained 8.6%. That’s still quite a move.
The point is, volatility is the name of the game when it comes to investing in cryptocurrency and that’s not going to change any time soon.
Since hitting a high late in 2017, bitcoin has lost more than half of its value due to profit-taking and increased regulations. It got a much-needed boost this week, however.
The heads of the SEC and CFTC (Commodity Futures Trading Commission) addressed members of the Senate Committee on Banking, Housing and Urban Affairs in regard to cryptocurrencies and blockchain technology. There were two main takeaways from the meeting.
First, both regulatory bodies see the benefits of blockchain. And second, blockchain and cryptocurrency are clearly starting to be accepted by the financial markets. This allowed the crypto market to rally back from the violent pullback it experienced over the last few weeks.
When It Comes to Cryptocurrency, Patience is Key
While there will continue to be big corrections and unnerving gyrations, the future of crypto is very bright. There is a lot of money to be made; the key is simply having patience and an understanding that blockchain is a long-term investment and trading cryptocurrencies is anything but a walk in the park.
The global market cap of cryptocurrencies topped out at about $800 billion in early January. But as of the middle of last week it was down to roughly $383 billion.
But looking out over the next 12 months, I suspect the $1 trillion market is achievable. Not every coin will be a winner; it all boils down to knowing when and what to buy.
My recommendation is to focus on those coins that allow blockchain technology to expand.
IOTA is one example, as it helps build out the blockchain for the booming Internet of Things sector. Another is ethereum, which is behind smart contract technology and is currently the second largest coin..
It may seem like the sky is falling right now, but once the dust settles the winners will start to emerge. And looking back, investors will realize that the 50% pullbacks were the time to start bargain hunting.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.