In the last month of 2017, headlines that read “Asians' Going Mad' For Ripple Coin” dotted news publications around the world. Ripple (XRP), a relatively new cryptocurrency, has grown from an unknown digital finance entrant to running right on the heels of market front-runner bitcoin in trade volume. At that time, Ripple was worth one American dollar, but as of November 2018, it’s worth less than $0.50.
Tech industry observers foretell the possible doubling or quadrupling of several new, obscure cryptocurrency offerings, such as Ripple coin. While many of these new offerings will fade out of existence, the industry as a whole is running on steroids.
Profits Loom on the Horizon
Start-up firms are enthralling speculative investors with initial coin offerings (ICOs), and digital coin buyers are gobbling them up like candy -- with wanton disregard. It costs a lot of money to set up an ICO, yet the new financial vehicle has skyrocketed the cryptocurrency industry up to $650 billion.
Many ICOs back unknown companies, products and services that no one can understand or use. Analysts equate this crop of shady ICOs to investment market poker chips and compare today's ICO bandits to the junk-bond lords of the 80s. Furthermore, not all cryptocurrency exchanges trade in all coin formats, and the initial user identification process is somewhat lengthy. Still, the cryptocurrency market is experiencing a bubble, providing speculators with considerably handsome returns.
Financial veterans suggest that if any digital coin doubles in value, the likelihood of all other coins doubling is high. This hypothetical narrative has kept speculators holding onto their investments in the cryptocurrency market waiting with bated breath for long-term returns, and rightfully so because with the market for new coins hovering at a rock-bottom discount rate, the potential upside is phenomenal.
Coin Suppliers Have Changed Their Agenda -- Sort Of
In 2017, the cryptocurrency market took the world by storm with unstoppable force. During this year, privacy coins -- a form of digital currency that completely conceals the identity of senders and receivers -- were a hot trend. Over the following 12 months, the value of the entire market soared to over $600 billion. In effect, the market grew 3,300-percent. For speculators, it was an amazing year.
Now, there's an even juicier trend currently emerging in the cryptocurrency market called “coin burn.” While cryptocurrency was birthed to provide a decentralized, deregulated financial instrument, it appears that digital coin developers have -- in a sense -- implemented their own version of regulation to promote stakeholder profit. The coin burn moniker might evoke visions of evil doom and gloom, and the jury’s still out on whether this is a good or bad thing in the long run, but -- for now -- it's good.
Coin burning is when major cryptocurrency miners or coin developers send tokens to an address with private unobtainable keys -- a virtual, digital dead-end. It's a way of removing tokens from the market to slow the rate of coin inflation and reduce supplies. The procedure is very similar to stock repurchases executed by publicly traded companies. By taking the coins out of the digital universe, miners and developers believe that they create scarcity and boost speculators' earnings.
Taxes and Digital Coin -- Yikes!
To date, speculators who have profited from bitcoin are plagued with headaches by lack of direction from the Internal Revenue Service (IRS). For investors, navigating through the agency’s many grey areas is akin to wandering across a minefield.
This is especially unfortunate, as cybercurrencies have just started to gain widespread popularity relatively recently (case in point -- The Great Coin Run of 2017), which is creating massive confusion while an enormous amount of speculator money is on the line.
The IRS considers digital currency as property that’s subject to capital gains and income taxes. While speculators do not have to pay taxes when buying digital coins, when they make purchases -- after the coins have increased in value -- they’ve executed a taxable transaction.
In a nutshell, the more that speculators invest into the cryptocurrency market the more complicated that it is to meet IRS mandates. For now, speculators can ease this pain point somewhat by using services such as CoinTracker. The resource, says company cofounder Chandan Lodha, is especially beneficial for digital coin traders who use multiple exchanges, multiple coins or exchange one cryptocurrency for others. According to the exec, it takes an immense amount of record keeping and accounting to have any hope of filing cryptocurrency earnings correctly.
Bitcoins’ history-making surge from $15 in 2012 to today's approximate value of nearly $6,500 will leave a permanent reminder with speculators of the potential of digital currencies. Catastrophic loss is a commonly recurring theme among high-risk stock market speculators. To date, however, not a single cryptocurrency investor has come forth with a report of similar losses as a result of investing in bitcoin. So far, although the barrier to entry is high, bitcoin is a safe bet. For now, the cost of more accessible cryptocurrencies range from as little as to 6 cents to around a dollar.
2017 was the year of Cryptomania. In 2018, speculators must ask themselves if phenomenal profits are still a potential reality. The average American earns between $27,000 and $50,000 per year and can afford to take a $100 loss in the highly speculative cryptocurrency market. For investors, this year and beyond will be a year of discovery about new, affordable coins. During this interim, experts advise speculators to only invest with they are willing to lose.
Managing crypto tax gains accurately and effectively is of especially vital importance this year as the IRS is no longer allowing tax-free like-kind exceptions, such as those used for real property. This matter can be complicated even worse if a cryptocurrency splinters, creating a second currency.
Many developments are contributing to bitcoin losing its firm grasp of dominance in the cryptocurrency market. While the coin still accounts for 80-percent of total cryptocurrency trading, there's plenty of other opportunities for entry-level speculators to cash in on the latest trend in finance.