Game on for crypto: A new asset class or the greatest bubble of all time?

Crypto space on fire – emerging trends worth attention

Post the remarkable Nasdaq debut, Coinbase’s latest move to allow its customers to buy cryptocurrencies using PayPal-linked bank accounts resurfaced the growing mainstream adoption of magical digital currency. Besides, the ultra-low interest rates prevailing across the globe have been urging investors to look away from the interest-bearing assets to alternate investments like bitcoin.

Delving into different crypto types, bitcoin mania has put cryptocurrency on the map in the investment space amid COVID-19. The acceptance of bitcoin as a legitimate mode of payment and the potential to reward significant short-term gains appear to be steering a positive trend.

Furthermore, as the sector is evolving, the momentum in other digital tokens such as ethereum and dogecoin is drawing fresh interest from the crypto enthusiasts. Notably, the world’s second-largest crypto ether is beating the market expectations, shooting past $3,000 for the first time. The Tesla chief executive’s support has also been sparking a boom in meme-based dogecoin. Thanks to Elon Musk’s cryptic tweets, the market cap of dogecoin has skyrocketed this year.

These eye-popping success stories in the crypto space are making it tough for even the sceptics to not consider putting money into the digital assets. Besides, investors seem to be brushing off the unprecedented volatility risks associated with the cryptocurrencies in a bid to harness the benefits of crypto boom.

While price swings in dogecoin and other crypto assets may continue to generate exciting headlines, the current scenario demands a conducive policy environment for an effective trading network for crypto assets. Such policy environment could be constructed via collaboration between private and public sectors to retain the positive momentum in cryptocurrencies.

Bearish signs need a reality check

At a time when several investors are hopping on the crypto bandwagon, some bearish signs cannot be ignored while we evaluate the overall prospects of this trending theme. As crypto space is highly unregulated, investors may not get any help from external sources if they fall victim to any fraud. So, it is important for investors to understand the ground rule of trading in cryptocurrencies – you should be prepared to lose all your money!

The sustainability of the crypto boom needs further attention, given that many argue that cryptocurrencies do not have any underlying asset, purely operating on the trust and speculation factor. Besides, bitcoin seems to be undergoing a sharp pullback in its valuation since mid-April 2021, calling for further research if this is an indication of a crash or there is still some steam left.

Are we in a bigger crypto bubble that may pop louder than before?

The bears have been warning of a 2018-style cryptocurrency collapse. However, the recent rally evidences a real shift from inexperienced retail investors to financial bigshots like PayPal. In other words, there is more substance to the crypto price rise this time.

Meanwhile, the continuing crypto bandwagon is moving in tandem with the dramatic surge in cashless payments and online shopping trend amid COVID-19.

The buzzing crypto space seems to be fuelling the portfolio adjustments, though the bull-versus-bear scenario needs to be closely monitored before taking any designated position. While many are evaluating the hot crypto space from an investment standpoint, the inverse bitcoin ETF recently rolled out in Canada in unfurling an opportunity for investors to take short positions in futures in case they wish to bet on the potential crypto dip.

The growing institutional interest and mainstream adoption of crypto assets are expected to fuel a cryptocurrency revolution. Having said that, maintaining balanced crypto exposure in the portfolio and trading on an established crypto exchange should be investors’ motto to dodge or limit the potential risks.

Kunal Sawhney, CEO, Kalkine