Cryptocurrencies started gaining popularity in 2017 because of the exponential returns despite their introduction in the year 2009. Cryptocurrency is now also seen as an investment opportunity by many especially after various cryptocurrencies have given unimaginable returns. Favourite investment avenues for investors were mutual funds, stock market, bonds, fixed deposits, etc., but cryptocurrencies have made their presence felt in recent times as an investment option and have seen a lot of inflow. Various start-ups are facilitating the investment in cryptocurrencies, making it feasible and reachable for every household to invest in in the hope of high returns. This chapter tries to analyse the returns that various cryptocurrencies have given since inception and compare the same with global benchmarks like NASDAQ, Nikkei, Sensex, etc. It is observed that despite very high volatility, cryptocurrencies were able to achieve very high returns as compared to stocks. The study also found a high positive correlation between the returns given by global indices and cryptocurrencies.
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As a futurist, one of the things we try and do is not just look at what’s going to happen in the future, analogies for what might happen based on what’s happened in the past have to be looked at. “You have to be a good ‘pastist,”’. The isolated technologies like blockchain and digitizing which are being noticed because of consumers’ low friction and immediacy can scale up to more rapidly in the global system. A decade runs at a faster pace. Within the last 10 years, technology has changed the way people bank and invest. From the era of the first currency being minted to digital banking, there is an amalgamation of the banking business and digital technology.
Traditionally, financial deals were cracked between two parties using fiat money which is now been replaced by an authentic chain of private networks through cryptography. For transferring digital money from one source to another, puzzle-solving techniques are rewarded in terms of cryptocurrencies. This is known as mining through blockchain technology. Satoshi Nakamoto conceptualized an accounting system post-financial crisis 2008 mooting an idea for transactions and value of money digitally on public availability. The same was mentioned on open ledgers (blockchain) containing all the transactions ever made through anonymous and encrypted forms. Cryptocurrency, a medium of exchange in a digital format uses encryption techniques to create monetary units and verify the exchange of money. Bitcoin topping the chart followed by Ethereum according to market capitalization. There have been voices calling for stable coins as an alternative to volatile cryptocurrencies. Recent cryptocurrencies have become a popular choice of alternative investment. These are digital currencies like Bitcoin (BTC), Ethereum (ETH), and many more. Alternative investments beyond usual stocks and bonds can be non-traditional assets like private equity, private debt, and other collectibles or can be exotic derivative investments like credit default swaps or mortgaged-backed securities.
The adoption of cryptocurrency proved to be most advanced in North America and Europe, covering other emerging countries like Asia, Latin America, Africa, and the Middle East. The concentration of merchants observed in North America and especially Europe covers P2P exchange platforms in almost 249 countries. The user database obtained from incorporated wallets providers exchanges payment platforms linked to the securities had covered 40% of cryptocurrency users based out of the Asia Pacific region. (Hileman et al, 2017). The role of exchange and trust attached to each of such exchange platforms hold significance in the cryptocurrency economy offering confident investment plans from the marketplace.
The market-specific factors which are predictive tools of returns dependent on cryptocurrency network factors and independent of production and cost of production of cryptocurrency devised strongly through the time-series momentum effect forecasting the returns (Liu & Tsyvinski, 2021).
The social sentiments of the investors during bulls and bears market situations have been drifted by the crypto market shift because of heterogeneity patterns of market behaviors. The trend was seen that a positive response was based on the bulls effect and the bears’ effect was more evident with a downward trend.(Kim et al,.2021)
The common risk factor in cryptocurrency can be linked to the cryptocurrency market, its size, and momentum of returns listing market-related factors in the stock market and constructing their cryptocurrency counterparts. Crypto long-short strategy under three-fold model constructs fit sizable and statistically significant returns (Liu et al., 2019).
The existence of Bitcoin, Litecoin, Ripple, and Dash over half a decade indicated the endurance of setting up a correlation between its past and future values. (Caporale et al, 2018). Primecoin being the first cryptocurrency in the market dearth of hashcash proof-of-work is used therein Bitcoin these days. Thus, proof-of-work in cryptocurrency helped in advanced transition providing both security and scientific computing values to maintain dominance in the long term. (King, 2013)