After a tumultuous 12 months, bitcoin has seen big gains in recent weeks, catching the attention of investors worldwide.
The resurgence of bitcoin price and its legitimacy as an alternative currency was seen throughout the world markets with a 30 per cent increase in value in just over a month.
However, with the speculative nature of cryptocurrencies, some investors are still worried about taking on such volatility.
While the rapid rise caught many investors off guard, private equity firm and crypto specialist Apollo Capital’s CIO, Henrik Andersson, was not surprised by the large upward swing.
“It’s easy to forget bitcoin was down 85 per cent last year. Bitcoin and other cryptocurrency have gone through these cycles four or five times, so this is nothing new to us,” said Mr Andersson.
The global advantage
With the trade war between China and the US deepening, investors are looking for alternatives to traditional stocks to gain returns.
Mr Andersson believes this is another advantage to cryptocurrency, as it is not affected by geopolitical issues.
“We have seen the trade war between the US and China escalate, and bitcoin is being seen more and more as digital gold,” said Mr Andersson.
“When we saw the stock market selling off earlier this week, bitcoin actually reacted positively to those kind of geopolitical news as it’s an alternative asset class that is not correlated to the stock market or to what is going on between the US and China,” said Mr Andersson.
Will the roller-coaster continue?
In the short term, there will be many more bubbles, experts believe.
“Anything is possible in crypto. It’s not the best case scenario that the value of bitcoin will pass 20,000 in terms of US dollars,” said Mr Andersson.
Risk versus reward
As basic financial principles say: the higher the risk, the higher the return. The same applies to cryptocurrency.
“It’s hard to get high expected returns without risk. Firstly, it’s a very volatile asset, issue of custody of assets, technical risk that does not affect other asset classes and regulatory risk all have an impact,” said Mr Andersson.
Where to from here?
“Crypto assets are new and untested; bitcoin is a potential to be digital gold. The asset is still in the building phase, so it’s unknown where it will go,” said Mr Andersson.
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