What happened
Many hook investments in the cryptocurrency market fell sharply on Friday after an 11.6% drop in bitcoin prices in 24 hours.
|
Company |
Relationship with bitcoin |
Maximum price drop on 1/15/2021 |
|---|---|---|
|
Riot Blockchain (NASDAQ: RIOT) |
Bitcoin mining |
15.2% |
|
CleanSpark (NASDAQ: CLSK) |
Bitcoin mining |
15.1% |
|
Grayscale Bitcoin (OTC: GBTC) |
Investment fund that holds bitcoin assets |
12.4% |
|
Ebang International (NASDAQ: EBON) |
Makes specialized bitcoin mining computers |
11% |
|
Marathon Patent Group (NASDAQ: MARA) |
Cryptocurrency mining |
10.6% |
|
MicroStrategy (NASDAQ: MSTR) |
Converted $ 1.13 billion of long-term cash reserves into bitcoin |
9.0% |
Data source: Yahoo! Finance.
And
Bitcoin prices have skyrocketed since the beginning of October 2020, rising from about $ 11,000 to more than $ 40,000 per token over a three-month period. Since peaking on January 9, bitcoin prices have fallen in the past week and a half. There was a big drop on Monday, January 11th, and a pretty steady rise for the rest of the week. Token prices almost reached the $ 40,000 benchmark again before falling again today.
Cryptocurrencies have gained the attention of major investment firms this year, one of the main reasons behind bitcoin’s huge gains in recent months. At the same time, big names can cause sudden price drops from time to time. Today, investment firm UBS Global Wealth Management reminded investors that the rise in bitcoin could end in tears. Cryptocurrencies are risky and volatile, and investors may end up losing everything they invest in that unproven asset class.
“There is little in our view to prevent the price of a cryptocurrency from going to zero when a better-designed version is released or if regulatory changes stifle sentiment,” wrote UBS analyst Michael Bolliger.
That was enough to cause a worrying price drop that also hurt many stocks that had been following the rise of bitcoin.
Image source: Getty Images.
What now
Bolliger is right, of course. The regulatory framework for cryptocurrencies is still evolving, which increases market uncertainty. Investing everything in a single cryptocurrency is a very bad idea, because a better version could really replace bitcoin at the top of the stack. I’m not saying this go happen, but the risk is not zero percent. If you are investing in cryptocurrencies today, it is probably best to divide your holdings between bitcoin and some other respectable names like Ethereum and Litecoin. All the big names are falling today, but their performance can vary widely from time to time.
Don’t cry for bitcoin experts, however. With the exception of the Ebang International micro-cap, they all performed extremely well during the current bitcoin boom. Grayscale Bitcoin Trust has gained 347% in the last 52 weeks and MicroStrategy grew 331% in the same period. CleanSpark shares recorded a 614% gain. And if you found these results impressive, we haven’t even talked about Riot Blockchain’s 1,964% return or Marathon’s overwhelming 2,374% earnings yet. All of this after going through Friday’s significant haircuts.
Cryptocurrencies can be fun, exciting and profitable – but you can also lose sleep because of their risky nature and sudden price drops. You cannot bet on these promising assets without accepting a great deal of risk. Today was just not a good day for bitcoins and friends.