The current cryptocurrency “bubble” is exactly why we need a service like Brickblock
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Brickblock is essential in diversifying your portfolio to mitigate against the risk of purely holding volatile digital assets.
Cryptocurrencies are on fire right now.
Bitcoin hit an all-time high of $3,018.55 USD on June 11, while Ethereum’s value has increased by more than 5000% since the beginning of the year (as of June 12). While Bitcoin and Ethereum aren’t quite mainstream yet, everyone from Goldman Sachs to Vice is talking crypto. People who’ve never read a candlestick chart are asking on Quora if they should commit their life savings to Dogecoin. Indeed, these are exciting and irrational times.
This begs the question of whether or not we’re in a bubble. Many experts seem to believe so and are predicting a swift crash anywhere from six months to six minutes from now. Others expect cryptocurrencies to continue their meteoric rise to the moon with only minor hiccups through the stratosphere.
Truth be told, no one can predict with any certainty what will happen in this turbulent new digital market.
What if, as the analyst who foresaw Bitcoin’s $2000 price predicted, Bitcoin hits $100,000 in a decade? What if it falls off a cliff tomorrow? Why not both? Perusing any forum or trusted source on the matter will return dozens of contrasting forecasts.
What is a bubble, exactly?
Investopedia’s ‘5 Steps Of A Bubble’ outlines the characteristics of a market where the price for an asset significantly exceeds its fundamental value. When tulip mania in the Netherlands saw bulbs traded for six times the average person’s annual salary, for example. That was almost 400 years ago, but the parallels to our current situation are soberingly similar:
Step 1: Displacement. A displacement occurs when investors get enamored by a new paradigm, such as an innovative new technology.
Step 2: Boom. Prices rise slowly at first … but then gain momentum as more and more participants enter the market, setting the stage for the boom phase. During this phase, the asset in question attracts widespread media coverage. Fear of missing out on what could be an once-in-a-lifetime opportunity spurs more speculation, drawing an increasing number of participants into the fold.
Step 3: Euphoria: During this phase, caution is thrown to the wind, as asset prices skyrocket. Valuations reach extreme levels during this phase. During the euphoric phase, new valuation measures and metrics are touted to justify the relentless rise in asset prices.
*Descriptions by Investopedia
Step four is ‘profit taking’, at the height of the bubble, followed by step five — ‘panic’. Those are followed by varying levels of grief and catastrophe.
All this bubble burst talk outlines the worst-case scenario. I think it’s very unlikely that prices outright crash as they for dot-coms at the turn of the Millennium, but there will dips and corrections to weed out the abundance of worthless coins and schemes hitching a ride on this new digital market’s upswing.
Just look at what happened to the price of all major cryptocurrencies in the time between I last ate lunch and the end of this sentence.
Keep in mind that the most serviceable dotcom companies of the 90s recovered to surpass their bubble stock price peaks relatively quickly. Blockchain technology and cryptocurrencies have a stable, promising future — growing pains are part of the journey.
The best way to hedge against the volatility of cryptocurrencies
The volatility of the crypto climate favours seasoned investors and dumb luck, but is off-puttingly risky for the majority of private and institutional investors and those who prefer taking a measured approach to their spending. If you can HODL (hold on for dear life) during heavy dips, you’re probably more resilient than most.
The key for traders, of course, is stepping in and out at the right time. But what are your options? Exchanging one cryptocurrency for another is equally volatile given that the entire ecosystem is subject to radical ebbs and flows, and converting your crypto into fiat currency for the sake of protection stagnates your investment strategy and incurs high fees.
But there is a third option: Brickblock.
Brickblock is the first platform that allows you to diversify into and out of cryptocurrency in a simple, transparent, and secure way. Built on the Ethereum blockchain, Brickblock allows people from all over the world to invest their cryptocurrency into real world assets across three types of funds — Real Estate Funds (REFs), Exchange Traded Funds (ETFs), and Crypto Funds (CFs).
Doing so is remarkably simple: After choosing an investment, you deposit the amount you would like to invest into a self-executing smart contract, which will generate a signed electronic document as confirmation of the fund order. On depositing the funds, you receive Proof of Asset tokens, which are your access key to the real-world assets acquired through Brickblock. They prove that you own the CF, ETF, or REF shares as outlined within the smart contract and entitle you, the trader, to any dividend payments or coupons derived from the assets.
Brickblock deploys a high level of quality control among its funds. Real estate projects included within Brickblock’s REFs will be screened for promising potential and carefully audited by independent parties to significantly reduce risk, while ETFs will track rule-based indexes like S&P 500, Nikkei or DAX. Both options offer stability while promising a greater return than sitting on cash.
You can read a more detailed explanation of how Brickblock simplifies investing by tokenizing ETF and REF assets here.
Why cryptocurrency holders need Brickblock
Brickblock is not positioned to be “against” cryptocurrencies, nor was it designed to be a measure of protection against a crypto crash. Its platform functions on and believes in these technologies while acknowledging the risks of their temperamental movements. Simply put, it aims to give traders and cryptocurrency holders the ability be to easily diversify their portfolio through cryptocurrencies and simultaneously hedge against their volatility.
Imagine you have x amount of Bitcoin. Its value suddenly spikes 10 per cent in a few days — not uncommon — and you’re happy with the profit you’ve turned. This being Bitcoin, a dip is certainly on the horizon. Cashing out into fiat currency is subject to high fees, as is investing back into Bitcoin the next opportune window. It also means your money sits there collecting dust.
Converting your Bitcoin into another cryptocurrency, meanwhile, doesn’t offer much protection either (cryptocurrencies almost always rise and dive congruently).
A much better option is to invest your Bitcoin into ETF or REF tokens to mitigate the turbulence of holding only digital assets while retaining your cryptocurrency’s value as an asset instead of nullifying it as cash.
