If you’re thinking about investing in crypto, it’s important to consider the fundamental principles behind cryptocurrency. A study by Laguna Labs shows that 47% of investors are doing so for profit and 36% are doing so for the fundamental promise of decentralized finance. The remaining 8% are investing in crypto because they reject the principles of traditional financial institutions. However, many investors are lacking confidence in crypto because of the lack of regulation. According to the study, 77% of investors would invest in crypto if more regulation was in place.
Market cycles
Cryptocurrency is not immune to market cycles. It follows the same natural trends as all markets and currency. There are highs and lows during each cycle, which affect the prices of different cryptos. During a high price cycle, cryptocurrency prices tend to increase by a significant amount. However, during a low price cycle, the price may fall by a large amount.
While the market is never going to be able to completely predict the future, there are recurring patterns that will help traders and investors plan their moves. These cycles are triggered by fundamentals in a market. For example, a new rule that bans combustion engines could set off a new market cycle for alternative propulsion systems. As more money flows into this field, it should spur growth in the industry.
A market cycle in the crypto space takes approximately four years. While this figure is conservative, there are likely to be some black swan events that may disrupt this process. Investors often ignore these cycles, which results in them selling at the wrong time or not selling at all. Waiting too long to sell can reduce their ROI and limit their opportunities for future investing.
Volatility factor
It’s tempting to think that investing in cryptocurrency is a safe and lucrative way to make money, but despite the hype, there is a substantial risk factor. For one thing, cryptocurrencies are notoriously volatile, with some experts predicting that by the year 2021, the crypto domain could be the most volatile market in history.
This volatility factor may not be a problem for experienced investors, but it can be dangerous for newcomers. Luckily, there are ways to minimize your risk by understanding how cryptocurrency price trends work. First, learning how to read price charts can help you anticipate value. You can use technical analysis to determine when a cryptocurrency is likely to go up or down in value.
Second, it’s important to realize that cryptocurrency price fluctuations are driven by speculative activity. Traders bet on the future price of different cryptocurrencies in order to make a profit. They can even make money by shorting a certain cryptocurrency. This speculative activity causes price volatility, as many investors are constantly trying to make a guess about the market swings.
Expectations of making more than 20% returns on crypto investments
If you have made any kind of cryptocurrency investment in the past, you may be wondering about the risks and potential return of such investments. Despite the many benefits of cryptocurrency, it can be volatile and you should know that you could lose twenty percent of your investment in just a single day. In fact, the price of Bitcoin has declined by more than sixty percent in one year alone, and it is now undergoing a 30% correction. In addition, other crypto assets have experienced even more violent movements. As a result, you should expect insane returns accompanied by insane losses if you want to succeed in this field. Because of the inherent supply constraints, the price of crypto assets fluctuates wildly and it is very hard to predict how much they will go up or down.
As the crypto market continues to grow and more businesses enter the crypto space, the risks of unregulated investments are only increasing. In addition to this, the growing public awareness of cryptocurrency is putting additional pressure on regulators to make these investments more attractive. According to Pew Research, a nonpartisan think tank in Washington, more than one-third of U.S. respondents have invested in, used, or traded in crypto. This is alarming, as uncoordinated regulatory actions may encourage dangerous capital flows that could ultimately damage financial stability. Additionally, the IMF estimates that the market capitalization of cryptos is nearly $2 trillion, which is a large number that could be a reflection of the significant economic value of the underlying technology, but also froth in an environment of stretched valuations.
Regulation of cryptocurrency in the U.S.
While the US Treasury has made it clear that cryptocurrency regulation is needed to combat both global and domestic criminal activities, the regulations are far from complete. In December, FINCEN proposed new regulations that would require exchanges and wallets to collect certain data on their users. These regulations are anticipated to become effective by the fall of 2022. They would require wallet owners to report any suspicious activity or large-scale transactions of more than $10,000, and they would also require wallet owners to identify themselves whenever they send more than $3,000.
The new regulations will focus on the protection of consumers and ensure the long-term stability of the digital asset industry. The president’s Executive Order on March 9 outlined the first whole-government approach to digital assets. This plan will require agencies across government to develop frameworks and policy recommendations that are consistent with U.S. values and priorities.
Until recently, Congress has left the task of regulating digital assets up to the various regulatory agencies. In 2016, the Congressional Blockchain Caucus was created, but until the middle of 2018, few bills in the House or Senate addressed this issue. Now, however, interest in these digital assets is growing. As a result, the Biden administration has begun to develop priorities for the coming years.
