Bitcoin’s Humongous Returns Are Luring Mainstream Investors: Here’s What You Need to Know

Bitcoin’s Humongous Returns Are Luring Mainstream Investors: Here’s What You Need to Know

Bitcoin mania is in full swing in 2017.

The cryptocurrency is no longer that quirky, risky, cyber gizmo that only tech geeks, Millennials and people on the Dark Web obsess over. No, it’s starting to become – dare we say – mainstream, where investors are now actively looking at bitcoin and other cryptocurrencies as key additions to a diversified portfolio. Even the most risk-averse investor is having a tough time ignoring the sector’s humongous returns.

Bitcoin has been on a monster run this year, with its value surging three-fold to a high of $3,018.54 in June from $968.23 at the end of 2016, according to Coindesk. Although it’s pulled back since then, recently changing hands at $2,060.88, it’s still up about 210% year-to-date.

Its younger competitor, Ethereum, has been on an even bigger blockbuster ride, with its value soaring 50-fold to a high of $415.31 in June from $7.31 at the end of 2016. It too has fallen from its high, recently trading at $171, but is still up more than 2300% this year.

So, why and how did bitcoin enter the mainstream psyche?

Maybe it was the surge in “ransomware” attacks, where even Granny was asked to pay up in bitcoins to unlock her computer from malicious malware. Or maybe it was the decision by countries, such as Japan and Australia, to recognize bitcoin as legal tender. Or maybe it was a growing number of investors choosing bitcoin over gold to offset the weak dollar. Any and all of these issues helped boost demand – and therefore, its value.

“It’s the herd mentality that occurs when you have rising markets and the fear of missing out,” said Charlie Hayter, chief executive of CryptoCompare, a research site that tracks the industry. “You have people acting in a mania-like fashion – jumping on the bandwagon because it has gone up and hope it’s going to go up more.”

The really “smart money” got in a year ago, said Hayter. But, for now, it’s still largely “the more adventurous in the financial world” who are putting it into their portfolios, he said.

Many experts believe Bitcoin is here to stay, and its run-up will continue, although not without setbacks and volatility along the way.

For example, many experts expect considerable volatility in August and September related to software upgrades to the Bitcoin technology aimed at increasing transaction capacity. Some bitcoin miners oppose the changes. And if developers and miners can’t agree on the format, there could be a split that could result in two separate currencies, which could turn the bitcoin market upside down. “It’s unknown right now and hard to predict what’s going to happen,” said Conrad Barski, a software developer and co-author of the book Bitcoin For The Befuddled.

The rise in initial coin offerings, where new digital currencies are introduced, are also pressuring prices.

Then there’s technical issues. A surge in trading could lead to bottlenecks and even flash crashes on the exchanges that could cause cryptocurrencies to plummet. In a flash crash last month, one exchange reported the price of ether plunging to a low of 10 cents from more than $300 a few minutes earlier, before recovering.

Still, Thomas Lee, strategist and managing partner at Fundstrat Global Advisors LLC, is bullish on bitcoin’s long-term outlook. In a report earlier this month, he predicted Bitcoin could be worth between $20,000 and $55,000 a unit by 2022.

“The technology for bitcoin and ethereum is extremely promising and I think it will fundamentally be a part of society in five or ten years,” said Barski, who owns both bitcoins and ethereum.

The growing mainstream popularity of bitcoin is a far cry from the “Silk Road” days of 2011, when bitcoin was viewed as a shady tool used by drug-dealers and other sketchy characters on the Dark Web to buy and sell illicit products and services anonymously. (The Silk Road site was shut down in 2013 amid an FBI probe, and its young founder, Ross Ulbricht, was sentenced to life in prison in 2015).

Bitcoin’s image has since taken a 180-degree turn. How far into mainstream America has it gone? Well, when Fed Chairwoman Janet Yellen was testifying before Congress this week, two grinning bitcoin fans sat behind her, holding up a yellow legal pad with the words “buy bitcoin” written on it. Their photobombing prank made headlines across the country.

For those interested in purchasing bitcoins and other cryptocurrencies, here’s a rundown on how and where to buy them directly as well as alternative ways to cash in on the bitcoin craze.

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