The case for investors sticking out the volatility in bitcoin and ethereum

Key Points
  • Wild price swings for digital assets like bitcoin and ethereum shouldn't put off investors
  • Cryptocurrencies are still new: Bitcoin has the potential to hit $1 trillion in market cap by 2025
  • Some skeptics are betting on digital currencies in fear of missing out
The case for investors sticking out the volatility in bitcoin and ethereum

Investors should not be put off by the price volatility for cryptocurrencies like bitcoin and ethereum because these digital assets are still very new and offer nearly unparalleled returns, experts told CNBC.

On Tuesday, ethereum's price fell below $200 for the first time since May 30; the cryptocurrency has fallen more than 50 percent since hitting an all-time high of over $400 in early June. Meanwhile in May, a price correction for bitcoin wiped off nearly $4 billion in its market value.

Bobby Lee, CEO of Chinese bitcoin exchange BTCC, told CNBC the gyration in prices was normal as the true value for these assets have yet to be discovered.

"It's not a problem," he said on the sidelines of the Rise conference in Hong Kong. "If you think about it, the volatility is natural for an asset class that is so new. There's no price discovery for it (yet)."

He explained as people have yet to discover the true value of an asset like bitcoin, they tend to trade them at a certain, discounted level before the market realizes it could be worth more and then the price jumps.

Cryptocurrencies are partly becoming more popular because countries and companies are taking a closer look at the technology that underpins them: blockchain. Japan, for example, approved bitcoin as a legal payment method in April.

"We're now sort of at ... a tipping point, where people are now considering bitcoin or ethereum or digital assets as more mainstream," Dave Chapman, managing director of Hong Kong-based commodities and digital assets trading house Octagon Strategy, told CNBC. "A lot of the people that we service are actually very comfortable with having 1 percent of their net worth into bitcoin or ethereum."

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To them, it's "just a natural extension of all their diversification of their portfolio" that includes other asset classes such as properties, precious metals or index funds.

Chapman added that while volatility may be off-putting, the returns on digital asset classes remain extremely attractive to investors. He said, "There's no other asset class in the world that could've given you the historic performance of this sector ... the historic performance, which is obviously not representative of future earnings, ... does appeal to a lot of people."

For context: $100 of bitcoin bought in 2010 is worth more than $75 million in 2017.

Analysts have made varied predictions about where prices and market capitalization for digital assets are headed. BTCC's Lee told CNBC he expected the market cap for bitcoin to hit at least $1 trillion, if not more, by 2025.

"I think it's going to go to at least $1 trillion, if not maybe $10 trillion in the next five to ten years," he said.

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Data from industry website CoinDesk showed the current market cap for bitcoin is about $38.55 billion on a supply of about 16 million in circulation. The total supply of bitcoins is limited to 21 million. "In a grand of scheme of things it's nothing. Many, many companies are worth way more than that," Lee said. Tech companies like Alibaba and Apple have their market cap at hundreds of billions of dollars.

Regulation may help lend more credibility to this market as an asset class: major governments including those in Japan, Russia and China are looking at introducing new rules.

In the end, Chapman said that while many investors may not yet be fully convinced about the potential of digital currencies, they will still invest into them because of the fear of missing out.

"We get a lot of people who are like 'You know what? I still don't believe in this experiment — I'm not really a believer, but I'm tired of sitting on the sidelines and missing out.'"

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