Cryptocurrencies' Investment Characteristics

Dear Reader,

Bitcoin, Ethereum, Ripple and other less prominent cryptocurrencies have established themselves as a viable investment vehicle since 2013.

Recently, even financial institutions like hedge funds and asset management companies have started investing mainly in Bitcoin. Actually, the cryptocurrency market is two tiered: Bitcoin and the other cryptocurrencies. Bitcoin has incomparably higher liquidity and recognition than other cryptocurrencies, more than even Ethereum, Litecoin, Ripple and all the other more obscure cryptocurrencies based on various companies' projects.

Bitcoin's risk or volatility measured by its standard deviation has decreased during the last several years markedly to around 5 %. Other cryptocurrencies have multiples higher risk or volatility measured by its standard deviation. The higher risk with more obscure cryptocurrencies is due mainly to the much lower liquidity of less prominent cryptocurrencies. Actually, even Bitcoin's liquidity is not that big when compared to the stock market and even the liquidity of the largest technology stocks like Apple, Amazon, Microsoft, Alphabet, the company owning Google, and Facebook.

With the growing popularity of Bitcoin, the liquidity of both Bitcoin and the rest of the cryptocurrencies grows quickly. However, the higher risk entailed in investing in less famous cryptocurrencies also brings along higher profit opportunities. Yes, one can still make multiples of his initial investment with Bitcoin, but given its already high market capitalization of 1.03 trillion USD  the chances of this are lower. On the other hand other, less prominent cryptocurrencies offer opportunities to make multiples of one's initial investment in the space of a relatively short period of time. The higher profit opportunities of such less famous cryptocurrencies also come with much higher risk of one loosing large portion or even the whole of their initial investment.

Cryptocurrencies is a developing asset class, the first new asset class in decades. Government regulation, blockchain's algorithm problems, security concerns, investors and public's perception are among many factors that can cause large movements in the prices of Bitcoin and other cryptocurrencies.

All that said, it looks like the interest in investing in cryptocurrencies is destined to grow. According to various news sources many new investors, who have never invested in stocks or bonds before have entered the cryptocurrency market using new platforms like Robinhood Markets for example. All those new investors are trying investing in other assets outside cryptocurrencies like commons stocks, for example.

Basically, in a nascent market sound analysis and risk management is key.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich