Historically, no asset has been a greater creator of long-term wealth than the stock market. Over time, stocks have generated a 7% annualized return, inclusive of dividend reinvestment and adjusted for inflation. This suggests an investor could double their money about once every decade, which is pretty impressive.
However, cryptocurrencies -- digital currencies that utilize encryption to generate money and verify transactions -- have left the stock market in the dust since the year began. Virtual currency investors have, in many instances, seen a lifetime's worth of gains over the course of 11 months.
But before you consider diving into the cryptocurrency craze, here are 16 facts you should know.
1.Digital currencies are exceptionally volatile
Probably the first thing you'll notice if you've been following cryptocurrencies is that they're exceptionally volatile. This derives from the fact that virtual currency trading occurs on various cryptocurrency exchanges rather than a central exchange, leading to increased volatility.
Since the year began, the aggregate market cap of all cryptocurrencies combined has increased by more than 3,200% as of Dec. 18. Nonetheless, bitcoin, the world's most popular cryptocurrency, has undergone four corrections of at least 20% over the past six months. In short, cryptocurrencies aren't for the faint of heart.
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2 Cryptocurrencies have no fundamental backing
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16 Cryptocurrency Facts You Should Know
With virtual currencies all the rage, here are the pertinent facts you should know before you invest.
Sean Williams (TMFUltraLong) Dec 19, 2017 at 10:00AM
The word cryptocurrency written across a multiple ASIC chips and circuitry.
IMAGE SOURCE: GETTY IMAGES.
Historically, no asset has been a greater creator of long-term wealth than the stock market. Over time, stocks have generated a 7% annualized return, inclusive of dividend reinvestment and adjusted for inflation. This suggests an investor could double their money about once every decade, which is pretty impressive.
However, cryptocurrencies -- digital currencies that utilize encryption to generate money and verify transactions -- have left the stock market in the dust since the year began. Virtual currency investors have, in many instances, seen a lifetime's worth of gains over the course of 11 months.
But before you consider diving into the cryptocurrency craze, here are 16 facts you should know.
A frustrated equity trader clasping his head at his desk.
IMAGE SOURCE: GETTY IMAGES.
- Digital currencies are exceptionally volatile
Probably the first thing you'll notice if you've been following cryptocurrencies is that they're exceptionally volatile. This derives from the fact that virtual currency trading occurs on various cryptocurrency exchanges rather than a central exchange, leading to increased volatility.
Since the year began, the aggregate market cap of all cryptocurrencies combined has increased by more than 3,200% as of Dec. 18. Nonetheless, bitcoin, the world's most popular cryptocurrency, has undergone four corrections of at least 20% over the past six months. In short, cryptocurrencies aren't for the faint of heart.
A person using a magnifying glass to examine a company's balance sheet.
IMAGE SOURCE: GETTY IMAGES.
- Cryptocurrencies have no fundamental backing
Unlike the U.S. dollars in your wallet, or any other currency around the world, digital currencies aren't backed by a central bank or a government.
They also have no tangible fundamental factors with which to help derive an appropriate valuation. Whereas you can look at the earnings history of a publicly trading stock to estimate its worth, or the economic performance of a country with regard to GDP growth to value a currency like the dollar, digital currencies have no direct fundamental ties. This makes valuing cryptocurrencies in a traditional sense especially difficult, if not impossible.
3.MORE THAN 1 300 CRYPTOCURRENCIES BUT BITCOIN IS THE KING
If you've been following the appreciation of virtual currencies, you've probably heard an awful lot about bitcoin -- and with good reason. It was the first tradable cryptocurrency that was brought to market, and it currently makes up 54% of the aggregate $589 billion market cap of all cryptocurrencies.
However, it's far from alone. There are more than 1,300 other virtual currencies that investors can buy, of which over two dozen have a market cap that's in excess of $1 billion.
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