Cryptocurrencies garnered a significant amount of interest from people around the globe in 2017. Subsequently, the number of digital currencies on exchanges skyrocketed from 617 to around 1,335. The cryptocurrency market grew exponentially especially in the last quarter of 2017. As of the 1st of December, 2017, the total market cap of the cryptocurrency industry was $326.7 billion. As of the 1st of January, 2018, the market cap had increased to $629.5 billion.
Not only did the market experience exponential growth, but also saw an influx in the number of market participants. A large part of this stemmed from a global surge in Bitcoin prices in the last quarter of 2017. Bitcoin’s market cap spiked by 1,364% while the altcoin market cap jumped 16,695%. These astronomical growth rates not only captured the interest of market observers but also triggered a worldwide ‘gold-rush’ for cryptocurrencies.
As Bitcoin became more popular and cryptocurrencies went mainstream, over 900 new altcoins hit the crypto-market in 2017. As a result, the overall market dominance of Bitcoin in the market was significantly reduced. At the beginning of 2017, Bitcoin’s dominance over the market was at 87.4% but was significantly reduced to 38.6% by the end of the year – a phenomenon probably triggered by the entry of new market players with large institutional and individual investors.
The meteoric rise of digital currencies was one that stunned the world and oddly defied traditional market behavior. Despite facing instances of high price volatility and being labeled a ‘bubble,’ the cryptocurrency market remains resilient even in the face of uncertainty. For context, the number of current blockchain wallets in the world recorded in June 2018 stood at over 25 million.
The Exponential Growth of Cryptocurrencies
As Bitcoin started to go more mainstream, awareness around blockchain technology and digital currency began to grow. This saw the launch of more cryptocurrencies through ICO crowdfunding campaigns. Both investors and developers started using the ICO mechanism as a viable way to raise funds for their blockchain projects (including many frauds, duds, and those not ready to deliver). In total, nearly $2.3 billion has been allocated so far with a majority of this taking place in 2017. As a side note of interest, there’s been a shifting trend towards ETOs (Equity Token Offerings), a more specific type of ICO.
Perhaps one reason why cryptocurrencies became so popular is the fact that cryptocurrency fundraising events appeared at first to pose more benefits than traditional fundraising techniques. For starters, funds could be attained much faster and efficiently through ICOs (and more easily, perhaps too easily). Secondly, any company could launch an ICO campaign and raise funds from anywhere in the world without any restrictions (at first – things have since changed). This led to a number of flunked projects by companies that weren’t ready to deliver, as well as outright scams. Today, however, a number of regulations have improved the ICO scene.
Rising Criminal Activities in the Cryptocurrency Market
Even though ICOs opened doors for companies to raise capital to fund their development agendas successfully, they also opened a loophole for scammers to exploit. ICO fundraising campaigns started receiving massive scrutiny once companies and individuals began raising millions in cash. A recent report compiled by ICO advisory firm Statis Group revealed that more than 80% of ICOs that took place in 2017 were identified as scams. According to the same report, the overall amount of funding for tokens in 2017 amounted to roughly $11.9 billion with about 11% (1.34 billion) of this funding going to scam ICOs (and things are not faring well in 2018 either, with at least half of ICOs failing in Q2).
Cryptocurrencies have become cyber-criminal’s playgrounds with the underlying technology behind cryptos attracting attention from the criminal environment. Blockchain technology offers privacy, anonymity, and cash, three things that a criminal values (not to say that good, law-abiding citizens don’t value these things as well, as many do). Through cryptocurrencies, criminals have found secure conduits to conduct illegal activities such as tax evasion, money laundering, extortion, kidnappings, terrorist funding, and contraband transactions such as hacks, thefts, and drug sales (of course, these types of things were happening with fiat money as well, crypto simply offered a new avenue). Cyber-criminals have stolen over a billion worth of cryptos in 2018 alone.
There is also a growing concern for crypto-scammers who are leveraging celebrity endorsements and social media to trick victims into investing in fraudulent projects. A great example is Centra Tech that got shut down by the US SEC. Furthermore, some exchanges have not set adequate KYC/AML control measures to minimize criminal activities. Besides that, crypto-jacking is also emerging as a massive threat to the industry. It involves cryptocurrency miners embedding codes in devices and websites to harness computing power from unsuspecting victims to mine various kinds of digital currencies. The main catalyst behind all these activities includes the lack of a rigid regulatory framework to govern illegal activities in the industry (not to mention better security measures).
Tips to Follow To Avoid Losing Money in Crypto
1) Avoid Margin Trading
Simply put, margin trading is merely borrowing money from a broker to purchase financial assets such as stocks. It allows you to make higher purchases than you usually would. For an experienced investor with a limited amount of crypto resources, margin trading is a potential option that will enable you to add leverage to your funds. It enables investors to add to the amount they have invested without actually holding the assets. Margin trading can be highly rewarding or highly risky depending on your trading experience and competency. It is a double edged sword, since you can make higher profits, or lose big time. Non-experienced traders should avoid margin trading.
Margin trading is a highly risky procedure that should only be left to professional crypto investors with years of hands-on experience. For newbies, margin trading is more like high-stakes gambling. It enables investors to invest more that they can afford.
2) Understanding that Crypto Is Not a Get-Rich Quick Scheme
The cryptocurrency market is a highly volatile and speculative market that has made a few people rich quickly (and has hurt many others who made bad investment decisions trying to get into the market). From the Winklevoss twins to notable cryptocurrency names such as Chris Larsen or Changpeng Zhao, many early investors have amassed quite the wealth from cryptocurrency. For most of these cryptocurrency wealthy individuals, they invested in Bitcoin back when it was new and held on to their assets only selling them at the right time. Therefore, it’s only natural that a vast number of investors want to be part of those who make incredibly huge gains. Relentless media coverage of such individuals gives a lot of people hope that they too can get rich by investing in digital currencies.
3) Generally Speaking, Avoid Buying Dirt-Cheap Digital Currencies
Hot new cryptos are hitting the market every single day. Often, these digital currencies are incredibly cheap and affordable for every investor in the market (though this is not always the case). The current cryptocurrency landscape is risky comparable only to a high-stakes casino. If a digital currency’s value doesn’t go up, it will either hold steady, or its price may fall. Nobody knows what the outcome of a new digital currency will be in the future. Do your research, and only invest what you’re willing to lose.
As it is with investing in any field, there are always risks associated with investing in the crypto-market. For one, there’s the risk of a digital currency turning out to be a pump and dump scam. In pump and dump scams, an investor will essentially jack up the prices of a specific cryptocurrency and then once the prices are up, dump and cash in on all of his holdings. Usually, this results in the collapse of a cryptocurrency with the individual or group behind the pump and dump idea reaping the benefits of high returns before the collapse.
Given today’s cryptocurrency hype and high returns of many ICO fundraising events, it’s easy to fall into the trap of chasing high investments for significant returns. The fear of missing out has plagued most investors especially after Bitcoin’s meteoric price rise at the end of 2017. However, the cryptocurrency space is one that remains largely unregulated and thus prone to scammers and pump and dump schemes. It’s highly essential that investors look beyond the cryptocurrency hype and into the real value of a blockchain project before wholly dumping their funds into the project. And you should never invest what you’re not willing to lose.
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