How Bitcoin introduced portfolio management to Millennials

Just a few months ago, I would never have considered actively managing my own investments. Not even for a minute. I mean, why would I? I work for one of the largest banks in Canada and am confident in my financial advisor’s ability to find mutual funds and investment strategies that are right for me and my goals.

Oh, how times have changed.

With the “crypto craze”, now, more than ever before, millennials are asking a lot of questions about investment principles, regardless of whether or not we want to classify cryptos as an asset class. That’s a discussion for a future post. Another discussion we will leave aside is whether or not cryptocurrencies have value. If you’re a naysayer of cryptos, that’s fine… at least we can all agree there’s value in teaching investment principles to the people who need to hear it the most… US (millennials).

People from all over the world, and all walks of life, are getting in on the ups and downs of the crypto boom. For a long time, cryptocurrencies were small projects without a lot of traction. Most people who held cryptocurrencies were tech geeks that quickly got an understanding of the potential power of distributed ledger technology (DLT).

Fast forward to 2018, and we have a very different story. Every day you can read anywhere between 5 to 50 articles related to cryptocurrencies… and these posts aren’t just from tech geeks anymore. Don’t believe me? Google “bitcoin” and then hit “news”. Popular news agencies are all hoping on board. Most of their posts stay high-level and talk about prices, and debate whether or not there’s value in cryptocurrencies. You can listen to podcasts, watch interviews, and read opinion pieces (such as this). You could spend all of your time looking through the available information, and you would likely be confused, and not know who to listen to. That’s a good place to be in… because it forces you to make your own unique opinions about the paradigm shift we are seeing unfold.

Hype and irrational investment strategies are all over the place. People who are buying for the sake of buying are in for a real stomach churning pain seeing the sea of red from crypto declines. Comparing the crypto craze to the dotcom bubble is also quite dangerous. Most of the lost $ value came from institutional investors in the dotcom bubble burst… whereas the lost $ value in the crypto craze bubble will come from everyday retail investors around the globe. The reality is retail investors now have the frictionless opportunity in participating in ICOs.

The dotcom and crypto bubbles are not the same, and have wildly different parameters that factor into the bubble. My estimate is that the bubble we see is even more profound than the dotcom bubble, and that should scare most people who are investing. If you’re investing in the crypto market with the idea that you will undoubtedly become very wealthy, you’re simply wrong.

Putting this aside, most people will still invest. That’s totally fine… but make a note that there are tons of flaws in most of the coins we see (scalability, instability, strategy, product, security, AML/KYC, etc,), and if you invest you must be able to answer these 3 simple questions;

1) How much do you want to invest and when?

• It’s very important to set a principal investment and specific target price to buy into the market. So, if you don’t want to buy a crypto ETF (which are available on NASDAQ), then you need to be very explicit about how you want to enter the market. For the record — the WORST investment strategy is one where you “put in as much money as you’re willing to lose”. You shouldn’t ever throw money around without knowing where it’s going and why it’s going there. There’s so many irrational investors that you simply cannot hedge your bets against losses. The volatility won’t disappear in 2018, and maybe not in 2019. Regulators need to pave the way before we see any signs of stability in crypto prices.
• To further this point, I’ve heard of many people buying during dips, buying during momentum, and then buying into a bunch of ICOs. I hope you’re well aware of the exposure you’re adding to your portfolio from an investment standpoint, because you could lose everything when you wake up in the morning. Be purposeful with how much, when, where, and why you’re investing.

2) What return are you aiming for and over what horizon?

• Are you trying to make a quick buck, or do you fundamentally believe in the project you’re investing in? You need to think this through, otherwise you will be terrified when the market loses $300B over two days (as it did this week). Not understanding the project that has your money simply has no place. Please educate yourself.
• It does not suffice to say that you’re going to hold onto your cryptos for as long as possible, or until the market begins to crash. You’re more likely to lose in this scenario than win.

3) What’s the project’s product(s)? Who’s on the founding team? Do you understand blockchain/DLT (at least in some capacity)?

• If you don’t have a single bit of understanding of blockchain, please, do everyone a favour and STAY OUT of the market. Or, better yet, educate yourself to some capacity before you dip your toes in. I’ve asked people why they’ve bought certain coins… and a typical response is “did you see yesterday’s price?! It mooned over 30%” (or some variation of the like). If you are seriously curious about a project, ask yourself why? Is it because you’re seeing how much the prices are going up? I recommend downloading a bunch of crypto news apps, following blockchain enthusiasts on social media, and doing some serious research into the top 20 cryptocurrencies on Coinmarketcap (https://coinmarketcap.com/). Do not pay attention to the prices, or the price swings (to start, at least). Stay lazer focused on the product, vision, and use cases the team is trying to propose. Also, ask yourself whether or not the project is trying to take a partnership or trailblazer strategy. For example, the Bitcoin project strives to be completely untouched by our current financial ecosystems, whereas Ripple (the third largest crypto), wants to closely partner with financial institutions. These are fundamentally different strategies, and both cannot (and won’t) win. Do you believe in full decentralization or not?

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So, what value do cryptocurrencies have? Even if you cannot fathom a world of “internet money” (which I can totally understand where you’re coming from), we can all agree on the following:

Cryptos are making us question the value of money, and the value of investment vehicles. More importantly, they’re making us question the existing financial ecosystem’s inefficiencies and issues. Questioning the status quo has never hurt the human race in the long-run. If anything, it’s made it better.

Article by: Eric Bujold, Advisor & Former President, Ivey FinTech Club

Originally published on: https://www.linkedin.com/pulse/how-bitcoin-introduced-portfolio-management-eric-bujold/