Bitcoin recently passed its 10th birthday, having given some owners huge gains, others enormous losses. It hasn't been in the news so much recently due to a slump from its all-time high over $17,000 a coin a year ago to below $8,000 last February. It opens 2019 around $3,700.
So, what have investors learned in the first 10 years? Will the ride be as wild in the next decade? Will bitcoin extend its reach as an actual currency for buying meals and paying the rent? Does that matter?
"I think that, right now, those who should think about investing in cryptocurrencies should be those who have an appetite for risk," says John Sedunov, assistant finance professor at Villanova University School of Business.
The introduction of futures trading this year may help stabilize the market by making it easier for bearish traders to place bets, he says, but he says the coin is still too risky for ordinary investors. "Retirees and those approaching retirement should avoid these currencies at all costs as the volatility is much too high."
Cryptocurrency advocates, however, see a maturing market.
"The 2018 bear market has taught many lessons" says Ofir Beigel, CEO of 99Bitcoins, an information site based in Israel. "I think speculators will be less reckless in the future."
Beigel says "most market participants would be absolutely shocked to see a sub-$2,000 bitcoin price" and the price ceiling is unknown.
Much remains unsettled, including the key question of whether any cryptocurrency serves a necessary purpose. True believers see value in a truly market-based currency free of meddling by a central bank like the Federal Reserve. The currency exists only as a digital ledger of transactions, with values set by supply and demand.
But security has been imperfect, and coins are occasionally stolen -- something that doesn't happen with dollars in an insured bank. Because transactions are anonymous and unrestricted by national borders, bitcoin has also become a currency of choice for crooks.
Ryan Singer, co-founder of Chia Network, another cryptocurrency, says that security lapses have been centered in trading and storage systems, not bitcoin's blockchain ledger system.
"Companies like BaseZero and Ledger are creating great tools for secure custody," he says. "Chia will support vastly upgraded functionality for secure custody and payments. We are particularly excited for the use of Lightning on bitcoin. ...We call this technology 'non-custodial exchange.'''
Though touted as an alternative currency, bitcoin has not exactly caught fire for ordinary purchases, though use has spread to around 14,000 locations worldwide, up from 1,600 five years ago, Sedunov says.
Doubters note that a true currency has a steady value. Bitcoin's has instead been an asset for speculators. Much of the enthusiasm has instead centered on price spikes that have produced fortunes for speculators who bought when the currency traded at less than a dollar.
The price can soar or collapse on the thinnest hint of a new regulation or adoption by a mainstream financial firm.
"There remains a lot of regulatory uncertainty," Sedunov says. "I think a lot of the future value of bitcoin depends on how countries like the U.S., China, and South Korea view and regulate cryptocurrencies."
While stock prices are largely governed by factors like corporate earnings, bitcoin value is largely driven by uncertainties such as what someone else might pay for an asset that has little use in the real world. Critics call that the greater fool theory.
Many financial advisors still do not know much about cryptocurrency trading, but this is likely to change, bringing these assets into the main stream, says, John Wagster co-chair of the blockchain and digital currency team at Frost Brown Todd, a law firm that advises clients on cryptocurrency.
"It might be acceptable for an investment advisor to tell an investor at the end of the year that the advisor elected not to purchase a publicly available investment that increased in value 20 times because the investment was too risky," he says. "But it's not acceptable for an investment advisor to say that he or she did not invest because they didn't understand the opportunity."
Advocates have long argued that bitcoin values will be boosted by the limited supply, since the underlying process limits the total number of bitcoin that can ever be created. But there's some debate about whether this is all it's cracked up to be because the coin can be bought and sold in tiny fractions. If one-tenth of a coin can someday have the value of a full bitcoin, is supply really limited? Those who answer no say this knocks out one of the legs of the stool.
To be really useful as a currency, bitcoin clearly needs wider adoption, which may not happen so long as whipsawing value makes it hard for a merchant to set a price. Should a new car be advertised at 10 bitcoin or 50? Price changes are so rapid that a price posted on Monday could be too high or too low on Tuesday.
A recent survey of 500 institutional investors by Natixis Investment Managers found that 64 percent expect more cryptocurrency bubbles rather than fewer.
Kyle Asman, partner and co-founder of BX3 Capital, a business advisory that helps firms break into the blockchain and cryptocurrency sectors, believes regulation will help steady the market.
"From our discussions with members of Congress, it seems likely that a light-touch regulatory bill will pass in mid-2019. This will be the regulatory framework for cryptocurrency moving forward," he says. "As major institutional players such as pensions, endowments, and sovereign wealth funds start investing in digital assets, we will see more liquidity and much less volatility in cryptocurrencies."
Asman does not believe bitcoin will come into wide use for ordinary purchases and sales, noting that currently it takes 20 minutes to complete a retail purchase. But he challenges those who say it has no place as an investment for the long term.
"Right now, bitcoin is a great IRA or 401(k) choice for those in their 20s or 30s because the price fluctuations now won't have an impact on the price over some 40 to 50 years," he says. "For someone who is nearing retirement now, however, it could be a little too speculative for their portfolios."
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