10 Oct How Does Speculation Relate To Crypto?
Speculation on crypto price has for a long time been the main route for people to access cryptocurrency. Is this something that is bad or can it work in your advantage?
What Is Crypto Speculation?
Speculation is the act of allocating funds to financial transactions that are considered to be substantially risky. You must be wondering: “why will anyone put his or her money in a deal that could fatally crash?’
The thing is that most deals that are considered to be speculative also has the potential to yield significant profits. As such, the bigger the risk, the bigger the possibility to make huge profits.
However, it is easy to mix up activities that are classified as investments and those that are pure speculations. This is because one way or the other there are risks associated with both concepts.
The major difference is the degree of risk each carries. Investments like stock are guaranteed to an extent, and all participants are aware of the risks and rewards associated with these investments.
In addition, the investments are regulated by a central figure, as such, the risk associated with them are not too profound.
On the other hand, speculation is on a level of its own as the risks an investor is exposed to are enormous. However, a majority of investors who partake in speculative markets (speculators) believe that the potential profit of this endeavor certainly worth the risks.
Although there is a bit of a correlation between speculation and gambling, the fact remains that they are not the same. Gambling on one hand solely relies on chance, while a speculator doesn’t rely majorly on luck.
Speculators do a thorough analysis of every speculation before concluding on the prospect of the investment. As such, speculators facilitate these investments with well thought out strategies.
Some of the Biggest Speculations of All Time Japan’s Real Estate and Stock Market Bubble
Speculations constantly drive the real estate market, and the prime example of such a case was Japan’s real estate speculation in the 1980s. The Japanese government rolled out monetary policies which triggered a surge of its stocks and land values.
The values tripled in four years and at the height of this surge, Japan’s real estate was the most valuable in the world. Unfortunately, the market crashed in the early 1990 and it took Japan ten years to recover from the crash.
The Dot-Com Bubble
Speculations triggered the rise of New Economy businesses that eventually led to the dot-com bubble in the 1990s. We witnessed the explosive rise in dot-com companies’ valuations as soon as they got listed on NASDAQ. As such, NASDAQ’s composite index had a 900% surge in just a decade.
However, the market crashed in 2002 and it led to a US recession. The scale and size of speculations during this period was unprecedented. However, the composite has recovered as it recorded a new high in 2015.
Where Does Crypto Fit In?
These historical examples of speculative investments confirm that the intensity of the speculation determines the greater the risk and the potential profit. Today, there are lots of speculation-driven markets, however, none is more pronounced than the burgeoning crypto market.
In fact, economists and financial experts have called the digital assets markets the new dot-com bubble.
However, the continuous battering of the crypto market by financial experts has not in any way hindering the growth of the market. Instead, the digital assets are slowly attaining mainstream status, and many believe that cryptocurrency will become globally adopted in the near future. Driving this growth, is the market primarily fueled by speculations?
There are two ways of answering this question. We could sugar-coat the truth by stating that the decentralized nature and the technological ingenuity of cryptocurrency are the major factors underpinning its growth.
Or we could lay it bare and accept that the burgeoning status of the crypto market is primarily fueled by speculation.
What do I mean by this?
There were few people that believed in the bitcoin project a decade ago, they invested their money in a project introduced by an anonymous inventor. However, the price of bitcoin skyrocketed and the hundreds of dollars they invested had multiplied to thousands.
As such, the realization that cryptocurrency promises explosive profits is the major selling point of the crypto market.
Now, no one wants to be sidelined when the next bull run creeps in. Even, institutional investors are eager to take the market by the scruff of the neck and capitalize on its volatile terrain.
Is Speculation Bad For Cryptocurrency?
Speculation is both good and bad for the crypto market. On one hand, it is the big billboard with neon lights promoting the explosive potentials of the crypto market. On the other hand, it immensely increases the risk associated with crypto investments.
It makes the crypto market perfect for speculators, therefore, the crypto market is a breeding ground for scams and dubious projects. As such, investors are at risk of incurring fatal losses.
Can Crypto Be A Good Investment?
The crypto market is experiencing so many changes that are indicating that the market is going to be around for a long time.
The technology is now on the radar of A-list brands and companies which are waiting for regulations that will give them access to the market.
As such, there are speculations that the market will hit another bull run as soon as institutional investors adopt cryptocurrency.
Crypto has the potential of being a good investment. However, you must understand that the market is surrounded by speculations. Therefore, you should analyze every opportunity that comes your way before you join the bandwagon.
The crypto market may be fueled by speculation, yet, it has its foundation in a reliable and tested technology. As such, it is definitely worth the risk.
As earlier mentioned, a speculative market has enormous profits and risks. As such, investors should have a well thought out strategy to manage losses and maximize profits. And the best way to do this is to access information that will help you negate emotions during decision-making processes.
One of the easiest and most effective ways to access this information is to sign up for live trading signals on verified Crypto Trader’s telegram channel.