MONCTON – The value of bitcoin and other cryptocurrencies has been on a rollercoaster ride over the past few weeks. James Larlee, an independent foreign exchange trader based in Moncton, says that’s all part of the market psychology, although he does see a bubble.
“The last two weeks Bitcoin and most cryptos have been dropping, so now we’re starting to see a bit of a slowdown there. And that’s just normal market trading psychology. If it stops dropping and [we] start to see those gains again, people are gonna go back in,” he said.
Bitcoin is one of many virtual currencies that use cryptography for security, making them hard to counterfeit. Unlike cash, these cryptocurrencies aren’t issued by a central bank or government. However, it is highly volatile, which means investors can either see large gains in a short time or large losses. Earlier in the week bitcoin was worth nearly $14,000 (U.S.). On Friday morning it had dropped below $11,000.
Analysts at Goldman Sachs wrote in a research report published earlier this week that bitcoin’s “meteoric rise” was beyond that seen during the dot-com bubble of the 1990s. They believe cryptocurrencies have “moved beyond bubble levels in the financial markets,” surpassing that of the Dutch ‘tulipmania’ of 1634-1637. This was a time when the contract prices of certain tulip bulbs rose to extremely high levels before collapsing.
Dave Gallant, by day the managing director of innovation services at Venn, admits that the cryptocurrency market could be akin to “the wild west.” He’s been trading virtual coins for the past six months through platforms like Binance.com, CoinBase and QuadrigaCX. He also believes there is a bubble. But he sees a come back as more people understand cryptocurrencies and as more regulations are implemented.
“I personally think there’s going to be another wave, another uptick with certain cryptocurrencies. But regulations are coming into effect in different countries. Some exchanges are shutting down because it’s found to be doing illegal activities,” he said.
“I think there’s going to be another upswing just because the general public still doesn’t know how to invest in it.”
Gallant said he’s gained around 10 times what he put in and recommends using an offline wallet to avoid losing money when cryptocurrency exchanges are hacked.
“[I invest anyway] because the potential return was worth the risk,” he said. “But I only put in what I was willing to lose. I knew that a probability of my money making a return was going to happen. I feel confident in that because, even though I’m really late to the game, I was still ahead of the general public.”
Larlee shares information on cryptocurrencies through a Facebook page called My Crypto Academy and an online community on Discord, a platform aimed at gamers. A former investment advisor for RBC, he believes the cryptocurrency hype could be overdone and may stagnate for a few years. However, he expects the industry to come back stronger.
“I compare it a bit to the Internet era,” he said. “We had the dot-com bubble. It didn’t mean that the internet wasn’t here to stay or it wasn’t good technology, but at first it was probably flawed or not very good. Things got crazy in the market. You could go raise hundreds of millions of dollars in the stock market by just owning a website domain address.
“I think it’s getting to that point in the crypto world, so maybe we’ll need a bubble bursting to cleanse the market to set it on a better footing, but I think it’s here to stay. We clearly see the value in the technology.”
This is in line with the Goldman Sachs report. The concept of a virtual currency using the underlying blockchain technology is viable because it could make trading execution easier, provide lower transaction costs, limit corruption and provide safety of ownership. But bitcoin provides none of these main advantages, the analysts said in the report.
Larlee, who has traded cryptocurrency for about a year and multiplied his investment by 10 times before the holidays, said the anticipation of a bubble burst is part of the market cycle.
“We saw that with gold after the 2008 market crises. It’s the same everywhere there are gains to be had,” he said.
Both Larlee and Gallant believe there will be more value in lesser-known virtual currencies, also called alt-coins. Larlee has put in more money in alt-coins like Tron and XLM. This brought up his cost, but still made him around five times what he put in after the recent large drops.
“It’s kind of, as the money was moving away from the more established coins, people were jumping into the smaller coins, really hoping to have the same type of run-up,” Larlee said.
“Most people think I’m gonna buy this coin and then I’ll be a billionaire in a year and a half. And I don’t see that happening,” said Gallant. “I think the wave has passed especially with bitcoin. I think there are a few coins that could possibly be close to that, but it’s very speculative and there’s no question it’s in a bubble.”