Nigerian stocks sat comfortably among the best-performing stocks of 2017, with a 42 percent rally that made it easy to forget the market’s low points since 2008. Similar growth was recorded in other parts of Africa, from Ghana to Kenya and Mauritius. Analysts are optimistic that stocks could keep rising in 2018.
While hopes remain high on stocks, a growing asset class that comes with similar risks, made African investors even richer in 2017. Due to the record returns the cryptocurrency offered investors last year, there are growing concerns that the digital currency as an asset class, is a bubble and it will burst soon.
However, before it burst, you have the opportunity to enjoy unprecedented returns on investment, especially if you have a very high appetite for risk. Just like the stock market, there are risks attached to investments in Bitcoin,
New investors, growing knowledge of cryptocurrency and expectation of more investments in the currency, has increased the price of Bitcoin several folds over the past one year, with demand constantly outstripping supply.
New Bitcoins are formed as reward for proof of work provided by participants using a data structure called the Blockchain, a single global ledger maintained by an open distributed system. Participation requires the use of signiﬁcant computational resources. A participant who proves to have exerted enough resources with a proof of work is allowed to take a step in the protocol by generating a block in a process called mining. Participants are then compensated with newly minted Bitcoins.
When the Bitcoin was invented in 2008 by Satoshi Nakamoto (the founder(s) whose identity remains a mystery), its program was designed so that the reward would be halved roughly every four years, in order to control inflation. This happened again in July 2016. The currency is also designed to have a finite supply of 21 million Bitcoins. This is expected to be reached in 2140. There are currently close to 4.3 million Bitcoins left that aren’t in circulation yet. In other words, there are about 16.7 million Bitcoins currently available.
In 2008, the value of a Bitcoin was $0.0008. By December 2017, it had risen to a peak of $17,900, an increase of 2,237,400%. No investment anywhere in the world could guarantee such return in 9 years. The returns are so good that the world’s top investment firms could not rationalize it and so they called it a bubble waiting to burst. Yet, most found ways of getting involved.
Chairman, CEO and President of JPMorgan Chase & Co. Jamie Dimon, called Bitcoin a “fraud”. Fund manager Mike Novogratz calls cryptocurrencies “the biggest bubble of our lifetimes,” and yet he is starting a $500 million fund to invest in them.
These days, Goldman Sachs, Morgan Stanley, TD Ameritrade, E Trade, etc., all clear Bitcoin futures for their clients, as everyone is getting on the crypto train.
So far, individual investors, each investing in line with their appetite for risk, have flooded the market. But things are set to change in 2018, with institutional investors believed to be eyeing the crypto market.
Kay Van-Petersen, an analyst at Saxo Bank, who correctly predicted last year’s Bitcoin price rise, says the digital currency will be driven by a larger uptake of institutional investors and futures contracts in 2018. According to him, Bitcoin could hit between $50,000 and $100,000 this year.
So, while Bitcoin may be a bubble that could burst anytime, the rally doesn’t seem to be close to its end and every serious investor who has taken a risk with the stock market should invest in Bitcoin.
* Disclaimer: This article is for discussion and informational purposes only. In no way should any information presented above be considered investment advice. Investments in financial products are subject to market risk. Some financial products, such as currency exchange and/or stocks, are highly speculative and any investment should only be done with risk capital. Please note that past performance is no guarantee of future price appreciation.