Shakespeare may have said it best in “Romeo and Juliet.” Cue Jules:
What’s in a name? That which we call a rose
By any other word would smell as sweet;
So Romeo would, were he not Romeo call’d . . .
A rose is a rose no matter what you call it—but is a bitcoin a bitcoin, no matter the name?
Should you invest in the Mother of all Digital Currencies, the bitcoin invented by unconfirmed creators in 2009, or will any fly-by-night arrival do? And if you stray from the progenitor that gave rise to this whole bubble, can you fare better in less populated parts of the market?
I am talking about the New Kids on the Blockchain. Ethereum, Litecoin, Zcash, Dash, Monero and on down to Faircoin, the 200th crypto based on total market cap, and beyond. They are among an estimated 1,200 versions of digital currencies you now can trade in, on any one of dozens of digital exchanges (Coinbase, GDAX, Binance, Kraken, Cryptorium etc.).
The price-movement spreads between any two of these currencies can be striking. A look at the top-10 previous 24 hours for Stellar (XLM), a 25% rise for Ripple and yet only a 1.9% lift for Monero and a 3.3% increase for bitcoin itself.
Millions of investors have crowded into the best-known play of buying into a sliver of bitcoin itself, sending the price aloft toward $20,000 in recent weeks, only to see it collapse to $12,000, rebuild to $16,000 and then fall back yet again this week. The other day, I’m having a drink with a couple of guys at the Chatham bar in Indianapolis, and I helped one of them open a new Coinbase account in a matter of minutes. He pumped $750 into it from his credit card and, moments later, said: “I can’t believe I just lost $70.”
Hey, if you haven’t sold, you haven’t lost.
Bitcoin is so volatile that we no longer are shocked by huge moves, if ever we were. As I got on the road yesterday morning to drive north up the entire, border-to-border western edge of the state of Indiana, heading back toward my base in Chicago, bitcoin was down 12% overnight. If the Nasdaq suddenly lost 12% it would be a national emergency.
Yet for all of bitcoin’s frenetic rise and fall and rise, some players seek better returns in the lesser known—where the ups and downs can be even sharper. Volatility yields far higher returns (for taking on far higher risk), and as stocks seemed to go nowhere but up for the past year and volatility went way down, some money flowed out of this safer haven to seek out greedier returns in the world of bitcoin.
These rookie investors are trading in and out of these currencies daily, similar to how the same kind of bettors were day-trading dotcom stocks right up to the bubble-burst and the ensuing Tech Wreck of 2000. I always wondered how many got out alive.
Trying your hand at betting on bitcoin’s stepsiblings carries higher risks. So many Initial Coin Offerings have come out, so fast, that some of them are bound to flop and others might be a scam from the get-go. The newer coins have far lower market caps, which means they can gyrate with even wilder volatility than bitcoin does.