In recent months, Bitcoin has received a considerable amount of attention. With the steady increase in value (although it has seen a dip in recent weeks), many see Bitcoin not only as a means of buying goods and services, but also as an investment opportunity. Beyond bitcoin, there are many other cryptocurrencies sitting in the shadow, many of which offer the potential of a valuable investment. For anyone considering a move into cryptocurrencies in 2018, it is necessary to not only identify possible investment opportunities, but also how some government agencies may start looking (and treating) these emerging currencies.
Government Regulations to Understand
Before making any sort of investment, understanding upcoming government regulations is a must. These regulations are likely to change in the upcoming years, but as of January 2018, these regulations (according to Market Watch) are current.
Security and Exchange Commission
Better known as the SEC, this government agency has not approved any kind of exchange or trade products that hold a cryptocurrency or even assets related to a cryptocurrency. The SEC hasn't registered any kind of coin offering for these currencies. The current official stance by the SEC on cryptocurrencies is that it can be a beneficial investment, but the currency can be used improperly (due to it not having a connection with any banks, so it's more difficult to track and trace, although this is one of the many attractive benefits of dealing in cryptocurrencies).
Internal Revenue Service
In the eyes of the IRS, all cryptocurrencies (it mentions Bitcoin specifically on its website) must be treated as a property for the simple purpose of taxes. This means cryptocurrency would fall under capital gains taxes. Essentially, the IRS sees it as a physical inventory and not like currency exchange. So, for tax payment purposes, cryptocurrency needs to be converted to a market value in order to pay market value taxes on the particular currency.
Department of Treasury
The United States Department of Treasury (DoT) stated in November of 2017 that it would be watching Bitcoin "very carefully" (it did not mention other cryptocurrencies by name, but it likely will keep an eye on other, popular currencies). Its main purpose for watching currency movement is to terrorism and money laundering. One of the issues for the DoT here is as the currency does not have a national origin, there is no national jurisdiction. For example, even if an American Dollar is in Singapore, the U.S. government has jurisdiction over the physical dollar itself because it is classified as government property. The same is true with all other currencies. The lack of a national origin makes cryptocurrencies more difficult to monitor or to lead to arrests due to this. Instead, the DoT and other government agencies must track currency movement and then monitor for other illegal activities associated with it.
Commodity Futures Trading Commission
According to the CFTC, Bitcoin should be considered a commodity. Due to this, if there is a case of interstate fraud in connection with Bitcoin (or other cyber currencies), it falls under the CFTC jurisdiction and it has the authority to look further into it.
Additional Government Regulations
Currently, governments are still trying to decide how exactly to treat cryptocurrencies. Due to this, major, wide sweeping regulations will likely not come out until after 2018 as these currencies become more commonplace.
How to Look at Cryptocurrencies
Investing in a cryptocurrency is, in many ways, similar to forex investing. Currency trading requires, while potentially lucrative, requires more than just looking at current trends. It requires an investor to put in additional research into where the currencies come from, in addition to several other key factors. Here are a few tips for identifying desirable cryptocurrencies for investments.
Where Did the Cryptocurrency Come From?
Understanding where the cryptocurrency came from and who is behind it may be the single most important bit of research an investor can make. This includes not only who created the cryptocurrency, but also who backs the development, and what (if any) experience the firm has in its creation. An established team in the industry makes for a much more valuable investment as it demonstrates some stability.
Why Was the Cryptocurrency Created?
Most cryptocurrencies come out for a particular reason. As is the case with just about everything, there’s a particular purpose for the currency. If the agency behind its creation released it simply to make money, chances are it will not last long. Instead, according to Market Watch (2018), the crypto needs to solve a particular problem. Those that do not offer little long-term value.
Understand the Risk
Every investment comes with risk. However, cryptocurrency has an inherent level other investments do not. As the currency has no nation of origin or bank behind it, should the currency falter, there’s no safety net. Many cryptocurrencies have seen an explosion in value in recent months due to the increased attention paid to Bitcoin and its increase in value. This has lead to an overvaluation of many cryptos on the market. Due to this, understanding the currency prior to making any kind of purchase is extremely important. With the lack of any security blanket, investors need to make sure and put in the necessary time looking into a viable crypto before buying in. With that said, here are some of the most viable options available, at least as of January 2018.
Beyond Bitcoin, Litecoin has generated the most attention and traction. Currently, as of the beginning of 2018, Litecoin has a market cap of $13.95 billion and an overall performance increase of 6,025 percent.
As indicated previously, some of the most important questions an investor can ask regarding a crypto is who created it and why. Charlie Lee, a former Google employee, created the currency, dating back to 2011. He created the currency as a way to improve transaction confirmations. He focused on how people used Bitcoin and how they mined for it online. He found the means to be too exclusive and believed anyone should have the ability to gain access to the cryptocurrency. This led to the eventual creation of litecoin nearly seven years ago (Fortune, 2017).
Litecoin provides greater access to external users. It currently has an 84-million-coin limit (with 54 million in circulation). Bitcoin, for comparison purposes, has just 16.7 million in circulation. The reduced circulation has helped increase value, but it may also prove to be its downfall as litecoin presents a greater opportunity with the larger coin supply.
When looking for a currency that saw the greatest value increase, Neo stands out. In 2017, it saw a total performance increase of 83,570 percent. It currently has a market cap of $5.86 billion. The currency itself has not received as much attention as other cryptos on the market, yet it has one of the largest total circulation numbers, with 65 million coins in circulation (out of 10 million) (CNBC, 2017).
The CEO of Onchain Da Hongfei created the cryptocurrency, along with co-founder Erik Zhang. The currency is heavily marketed in China, which is one key factor in its explosion of value over the last year. The currency itself has been around since 2014 when it debuted as "Antshares.” However, Mr. Hongfei did change the currency name in order to reference the sci-fi movie The Matrix.
Monero remains a bit of a mystery. Some who look to use the currency online like this, while others who are looking for an investment may want to look elsewhere. It currently has a market cap of $5.95 billion and saw an increase in value by 2,596 percent in 2017. However, one of the key issues, at least in terms of investing, is the creator of Monero is anonymous. This means understanding both the creator and the reasoning for the crypto are unanswered questions (Medium, 2017).
Monero does provide a public ledger, showing every single transaction made with Monero. However, the currency information is obfuscated, making it untraceable, so there is no possible way to connect dots regarding the currency. Monero reports most users of the currency are large corporations who do not want the competition knowing where it is moving its money (and why).
Despite the anonymous factor with regards to its creation and purpose, there is one valuable element to the currency: there is no fixed coin supply. This may limit its long-term financial investment potential, but it also opens up for the greater chance of expansion. Two of the most important factors for a crypto investment hinge on value, and whether or not the cryptocurrency will be around. Limiting currency availability does hinder potential growth. Monero shouldn’t face this kind of long-term issue.
This is one of the newest cryptocurrencies on the market, as it started up in August of 2017. Despite its short existence, it has seen a 623 percent increase, with a sizeable market cap of $45.61 billion. It is important to not confuse Bitcoin Cash with bitcoin though.
A team of initial bitcoin investors created Bitcoin Cash. It is known as a “hard fork” of bitcoin. This means it is basically a new version of the crypto, yet not compatible with its predecessor. The creators developed Bitcoin Cash as an answer to the high fees and often slow processing times behind bitcoin. The sizeable market cap allows the currency to process faster with smaller fees. The biggest hurdle standing in front of this currency though is it needs to convince stores and other retailers to accept both the original bitcoin and its direct competitor (Market Watch, 2017).
Among all current cryptocurrencies, Ripple possesses some of the strongest backing and development potential. Ryan Fugger and Jed McCaleb, two Web developers and former bitcoin developers, launched a software company “Ripple” (along with business investor Chris Larsen) in 2012. The team released its cryptocurrency shortly after.
One of the key investment questions needed prior to buying into a cryptocurrency is why the creators released it. Ripple came out as, essentially, a cryptocurrency exchange. It isn't just a currency, but a currency system (think of it as a crypto Forex platform). In fact, other currencies, including Bitcoin, can be traded on it. It also connects traditional banks and financial services within the software, which makes it one of the best platforms for trading currencies while also reducing charges attached to it.
Over 100 bank chains around the world now use the Ripple software and a new hedge fund was recently announced as well. Additionally, a total of 38.7 billion coins (out of 100 billion) are in circulation. This makes it far larger than the other currencies out there. Plus, with the 41,040 percent performance increase in 2017, it is seen as a viable investment opportunity. The New York Times went as far to call it a cross between a currency exchange and Western Union while also anointing it as bitcoin’s successor. As a monetary platform, it offers what other cryptocurrencies do not, which at the very least should give it legs to last longer than other cryptos in circulation.
A group of blockchain developers created Cardano out of Hong Kong and released it in October of 2017. In just four months, the crypto saw a performance increase of 3,296 percent. The team is made up of only Web designers, but academics and peer-reviewed research engineers. The goal is to provide a cryptocurrency that is scientifically backed with data in order to provide the strongest performance based crypto. The currency itself is still in its early design stages, so despite having a current market cap of $20.21 billion, and 26 billion coins in circulation (out of 45 billion) there is still a long way to go with this currency. However, for investors who are looking to jump into a new cryptocurrency that does have the knowledgeable backing (and one that is different from the competition), this may prove to be a viable opportunity (Market Watch, 2017).
Cryptocurrencies are here to stay (at least for the foreseeable future). With that said, not all forms of crypto will remain. For every one successful crypto, there are dozens that fall by the wayside. Putting in the necessary research into the cryptocurrencies is very important. The lack of any safety net makes investing in this format extremely risky, but it also brings with it a substantial reward. That is why investing in such an opportunity can pay off many times over.
Tell Us –
What is the main obstacle facing people looking to invest in cryptocurrency?