Cryptocurrencies were the top performing financial asset last year. During the first week of 2018, altcoins and ICOs saw massive price spikes, but those were followed by a 9-day crash that eliminated most of the gains. Nevertheless, many in the community are holding on to the assumption that these fluctuations are normal and the “true value” will rise over time.
As an asset, just like any other investment, cryptocurrencies have an expected value, and there is some degree of certainty that the value is correct. The problem, though, is that there is a large variance in pricing because the expected value is hard to define. With more volatility in markets, investors need a larger appetite for risks and must be able to trust their instincts.
Many investors stay away from cryptocurrencies because they are too volatile, there is no real value or because they feel it’s a bubble. There are certainly cryptocurrencies that lack real value and the industry does seem comparable to historical bubbles; however, as with all investing, it’s important to recognize the following:
1. Past prices do not indicate future performance
2. Valuable products will grow rapidly and eventually reach a stable market price
What this means for investors is that price volatility comes from short-term irrational debates over price, and spikes and crashes do not change long-term performance, which is based on product value. These short-term spikes are inherent in small markets (compared to the number of investors and amount of capital in equity markets), because prices are driven by speculation rather than data-backed valuations.
However, this variance in pricing introduces extreme risk levels and limits the capacity of cryptocurrencies. Money needs be able to store value with the general assumption it will not drastically change over the short term. This makes volatility a major concern for the future growth of the cryptocurrency industry. Unless prices become more stable, consumer applications will likely be limited and institutional investors will be slower to adopt.
TrueCoin is a new cryptocurrency that is price-stable and fully collateralized by the U.S. dollar. The dollar is a relatively stable coin because it utilizes regulation from the Federal Reserve to optimize price and money supply. TrueCoin relies upon a decentralized governance system and is fully backed by USD. In this way, both have a system of governance to prevent major price swings.
TrueCoin checks off all the boxes that the crypto community looks for in a USD stablecoin. In the past, many stablecoins, such as Tether, did not conduct frequent, transparent audits of their assets and struggled to put beneficial regulations of price and supply in place. TrueCoin conducts transparent monthly audits, so investors can be confident that there is sufficient collateral for all investments. They have also developed a better system for maintaining stable prices and are paying better attention to their product ecosystem than Tether.
Obviously, the upside of cryptocurrencies lies in its large potential value, and that is what drives massive price fluctuations. However, if TrueCoin builds a cryptocurrency that is able to reduce the price variance while maintaining slower price growth, it is likely there would be much more consumer adoption due to expanded use cases.
TrueCoin only needs to lower variance from the absurd fluctuations of current markets. Even if it maintains some of the inherent volatility, their quality fiduciary system and transparent reporting process are indications that cryptocurrencies are growing up and innovative systems that allow for regulation will be the long-term winners.
Goldman Sachs compared Bitcoin to gold and stated that since the market cap for gold is in the trillions of dollars and is largely controlled by banks, the price does not fluctuate as much. Take away that variance, however, and they both rely on the same concept. Neither has a concrete value; rather, both are an asset of agreed value, but the value of Bitcoin simply varies more from day to day.
TrueCoin has already started gaining a number of financial partnerships and has received investments from top funds, such as Stanford’s Start-X, FJ Labs and Blocktower Capital. This makes sense, as cryptocurrencies’ biggest problem is currently their volatility. People need assets and money that they can trust will hold their value.
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