Interest in cryptocurrency as a form of buying, trading and investing is booming. Operating independently of a central bank cryptocurrency is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds.
Even if most people don’t know exactly how it works, most are at least familiar with the ubiquitous Bitcoin – the first and biggest cryptocurrency to be based on blockchain technology. However, there are countless cryptocurrencies you can buy into and the most common in Australia are Ethereum and Ripple. The two top cryptocurrencies in terms of popularity and profitability are Bitcoin and Ethereum.
- How are the major cryptocurrencies faring?
The global cryptocurrency market has suffered a loss since January 1 this year but not all coins have declined equally.
Ethereum has fared well in 2018 and is up more than 46% this year, according to Markets Insider data, far outpacing Bitcoin’s 25% decline.
XRP, the third-largest cryptocurrency, controlled largely by its creating company Ripple, is down more than 45% since January 1.
2018 has been marked by wild price movements as fears of regulation routinely wipe out billions of dollars in market value on any given day. That’s a complete U-turn from 2017 when prices moved north at breakneck speed.
“The state of cryptocurrency is incredibly strong,” Andy Bromberg, CEO of CoinList, an ICO hosting platform, told Business Insider. “Looking far beyond the prices, we’re seeing an increasing number of high-quality projects in the space, with experienced teams, impressive early technological breakthroughs, and rigorous legal structuring.
“We expect to see this continue into 2018 as the industry matures and professionalises – a necessary step for it at this time.”
- How to buy bitcoin in Australia
The easiest and most user-friendly way to buy cryptocurrencies is to use an exchange where you can swap your Australian dollars for any number of cryptocurrencies. You’ll need to provide identification such as a driver’s licence or passport, which are then reviewed by the exchange before you can buy or sell cryptocurrencies.
Things to consider before purchasing cryptocurrency and deciding what exchange to use include:
Exchanges don’t generally sell every cryptocurrency available
Exchanges charge transaction fees
Exchanges have daily limits on how much you can purchase/sell
Exchanges have different payment methods
Before signing up for an exchange, research what cryptocurrencies they are selling, the security measures they offer (do they have two-factor authentication?) and their daily limits.
The larger exchanges in Australia include:
BitCoin Australia, CoinJar, CoinLoft and CoinTree
Decide where you are going to store your cryptocurrency.
Based on blockchain technology, most “digital wallets” come in the form of mobile apps in a similar manner to online banking programs, without the need for a centralised control body such as the bank itself.
There are two types of wallet – cold storage (offline) or hot wallet (online through mobile apps) – for trading and buying and selling things.
- How to sell bitcoin in Australia
Set up your cryptocurrency to sell automatically at the best price.
Compare the options at www.finder.com.au/how-to-sell-bitcoin to find the one that gives you the highest returns.
Decide how many you want to sell and at what price. Upload your coins to the exchange.
Once someone decides to buy your coins, the transfers can be made automatically.
Look at current bitcoin prices to get a sense of how much you should ask. You can use those as a general baseline. Prices can vary between exchanges.
Set lower prices to sell faster and easier or higher prices to get more money. Remember, you are competing with other sellers on that platform.
- The risks
The biggest risks are the hacking of accounts and market volatility.
“There are plenty of risks,” Lucy Cameron, senior research consultant at the CSIRO’s data innovation group Data61 told the Huffington Post. The main risk in the past has been the hacking of “wallets”, which keep people’s Bitcoins for them.
“The other thing is the volatility in the market. There are usually periods of high volatility around sudden decline in national currencies – Brexit for instance, when the pound went down. That saw a sudden spike in Bitcoin [value],” she said.
For those considering dipping their toes into this burgeoning sphere, Cameron says, it’s a case of “buyer beware”.
“I don’t think anyone should invest any money that they can’t afford to lose.”
At present, there isn’t much out there in terms of Australian regulations put on cryptocurrencies and people investing in them apart from tax requirements and a government warning about Initial Coin Offerings (ICOs). ICOs are crowdfunding campaigns created by prospective cryptocurrency business or program founders to raise funds ahead of the launch of their product.
- Will it last?
Trading in cryptocurrency remains highly exciting for the future.
Says Data61’s Lucy Cameron: “It’s new territory for us all. We’re all trying to navigate what make it work and what it’s sensitive to but in terms of the longer-term futures for this, it’s an exciting development.”
On a more sobering note, speaking to CNBC in January, CEO of Standard Chartered Bill Winters warned that Bitcoin, Ripple and Ethereum prices could plummet amid fears that cryptocurrencies face huge regulation.
Mr Winters said he could not see any way where the cryptocurrencies and Blockchain were not going to be looked into by authorities.
“We are a complete believer in the technology underlying the cryptocurrencies.
“The cryptocurrencies themselves I imagine will find themselves quite regulated.
“Of course, they were designed in many ways to avoid being regulated.”
Prophets of doom point to a likely end for Bitcoin in 2018 but other cryptocurrencies such as Ripple and Ethereum, which have superior technology, will, most believe, continue to thrive.
Speaking to Bloomberg, Benjamin Quinlan, chief executive officer and managing partner at strategy consulting firm Quinlan and Associates in Hong Kong said: “We think that various forms of cryptocurrencies will survive and will do very well.
“We think that cryptocurrencies with potential applications and utilities such as Ethereum or Ether, smart contracts can be built on top of it, decentralised applications.
“Bitcoin in its current form can’t do that.”
- Pros and Cons of investing in cryptocurrency
The least risky coins are usually the coins that have been around the longest and have the highest market cap and highest volume. Anything other than Bitcoin, Litecoin, or Ethereum is riskier than those three. Of those, Bitcoin is the current top coin for longevity, market cap, and volume. It is also the most expensive.
- The cryptocurrency market is still young, and the most optimistic of investors are projecting future prices that would make buying any of the major cryptocurrencies a good bet.
- Since the market is volatile, if you time your buys and sells correctly, you can often buy high low and sell high. There is money to be made.
- Cryptocurrency is perhaps the most exciting asset of the 21st century. A decentralised digital currency that works on the very interesting and likely here-to-stay blockchain technology.
- Even if cryptocurrency is a good long-term bet, we don’t know if Bitcoin (or any of the top coins) will be the one that sticks around.
- Those with low risk tolerance are prone to getting weak knees and pulling out at a loss while the market is correcting or slumping. An investor needs to be prepared to take a loss or sit on a loss for a while if the market goes down. That takes a certain type of steady mind set and expendable funds.
- The attitude of crypto investors seems to change with the wind. A bit of bad news in term of regulations tends to send prices into a tailspin one day, but the same news another day might have no effect.