Cryptocurrency, such as Ripple, Bitcoin, Ethereum and LiteCoin are among the best-known examples of a decentralized, peer-to-peer virtual currency that can be handled like money (i.e. it can be exchanged for traditional currencies like the U.S. dollar or any other currency). It can also be used to buy goods or services, typically online. In simplest terms, cryptocurrency is electronic money. Therefore, when an investor acquires cryptocurrency, he or she receives electronic units.
Cryptocurrency’s main differentiation in comparison to traditional currencies is that it’s not issued, stored, regulated, or protected by any government, credit union, central authority or bank. Moreover, information regarding each and every transaction is publicly shared and stored securely. Cryptocurrency enjoyed a spectacular run-up in 2017, vastly outperforming major U.S. stock indices. Bitcoin gained 1,390% in 2017 and was up as much as 1,935% when it hit a record high of $19,666 in mid-December. Ripple was the top-performing cryptocurrency in 2017, with an eye-popping increase of 28,963%. In contrast, the S&P 500 was up “only” 19.4% for the year.
In recent days however, cryptocurrencies have given back some of their most recent gains. During intraday trading on January 16, Bitcoin fell 28 percent to below $10,000 on Coinbase, Ethereum dropped more than 30 percent from the day before and Ripple, clinging to its hold as the third-largest digital currency by market capitalization, fell 46 percent before rebounding somewhat later in the day.
For newer investors, these sudden price movements more closely resembled a (roller)coaster than crypto and some are questioning whether it is too late to invest in digital currency. However, it is important to remember these fluctuations are nothing new. In 2013, Bitcoin’s price fell as much as 61% in a single day. In 2014, the one-day price drop was as much as 80%. We all know how things ended up three years later, so selling in a panic may be the most expensive mistake a new cryptocurrency investor will ever make.
The chief economic advisor of Allianz (DE:ALVG) SE and former CEO of Pimco Mohamed El-Erian said regarding the recent pullback on Bitcoin, "[e]ither this sharp price correction will act as a catalyst for expanding what, until now, has been quite limited institutional involvement in this market — or it will become a stage in the deflation of a remarkable and historic asset bubble."
Kay Van-Petersen, an analyst at Saxo Bank who correctly forecast bitcoin would double in 2017 from $900 to $2000, recently told CNBC that he expects bitcoin to hit between $50,000 and $100,000 in 2018 -- buoyed by the introduction of futures contracts to trade digital currency and expanded institutional interest. He too subscribes to the theory that a pullback is merely a prelude to further growth, “you could argue we have had a proper correction in bitcoin, it has had a 50 percent pull back at one point, which is healthy.”
Despite the recent volatility, in looking across the cryptocurrency marketplace, it is most interesting to see how companies are adopting blockchain technology to transform their businesses and how these transformations are received by the market. It is in this areawhere we may be seeing a new evolution of cryptocurrency.
When the former Long Island Iced Tea Corp. changed its name to Long Blockchain Corp. and announced it was shifting its business focus to blockchain technology, the stock rose 300% in a single day. Philip Thomas, CEO of Long Blockchain Corp. said in his public announcement: "[w]e view this transaction as an important and validating initial step in the Company’s progression into blockchain technology. The commencement of our mining operations places us on a path to generating blockchain-related revenue through the accumulation of bitcoin."
When Eastman Kodak Co. recently announced that it is launching KODAKCoin cryptocurrency to give photographers a new revenue stream and a secure platform for protecting their work, its shares jumped 200 percent, with volume up 22,000 percent.
Other companies are seeking similar success with their blockchain-based ventures, and a few innovative new companies are taking an uncharted, but interesting path, especially in light of current events.
Red Lanterns is a new app to help individuals more easily and privately access comprehensive sexual education from leading sexologists, psychologists and educators using augmented reality and blockchain technology, as well create a contract of consent between partners before sexual activity. “While we hope parties will feel comfortable to express themselves without the assistance of technology,” says Nikolay Zirchyk, CEO of Red Lanterns, “our service is capable of sending a clear and unequivocal message of ‘no’ and establishing a record of withdrawn consent.” Red Lanterns is planning its cryptocurrency ICO (initial coin offering) for February 14.
Established companies like Kodak, and even new upstarts like Red Lanterns, have certain advantages that other popular cryptocurrencies do not. By tying the application of blockchain technology to actual products and services, it may be able to resist some of the criticism leveled at the current digital currency market leaders where the underlying value supporting the digital currency is still, mostly virtual and government regulators, retail and institutional investors and the media are understandably struggling how to properly assess Bitcoin, Ripple, Ethereum and other digital currencies.