Basics of Crypto Currencies
The number of crypto currencies is becoming more and more complex day by day and is basically a digital currency that is not available and cannot be issued either as a bill or as a coin. This is so-called “book money”, since it is only in the books (on the blockchain), but at no time is actually and literally tangible. Crypto currencies are basically the means of financing various underlying projects. Although the topic of crypto currencies was initially called the biggest speculation in history, even major investors such as wealthy private individuals, institutional investors and funds are now investing in the miracle money. However, the crypto-financial market is also a financial market and financial markets have always been characterized by an essential element that decides between victory (profit) or defeat (loss): Information. Information is the key to success and at the same time the direct path to negative performance, because it is available in such an unmanageable quantity and at the same time in such a non-binding quality that the average private investor does not really invests, he speculates — a fundamental difference! However, with over 1,300 different currencies — and the trend is rising sharply — it is also extremely difficult for institutional investors and funds to find the right coin, as analyses are currently considerably more complex than for equities or other comparable investment products.
Anyone who speaks of crypto currencies is usually not far from the term BITCOIN (short BTC), because after all, the coin issued in 2008 is undoubtedly the best-known representative of its kind. The inventor behind it, “Satoshi Nakamoto”, is a pseudonym that may be used for an individual or an entire group — one does not know. Technically, Bitcoin is a peer-to-peer network based on blockchain technology.
Bitcoin’s public trading started in 2009 and has experienced an almost incomparable share price development. Over the years, the price was around USD 100 and reached a historic high of over USD 20,000 in 2017 (December 17, 2017). All payments with Bitcoin are completely digital, encrypted and without middlemen. Every transaction is recorded in the blockchain and is therefore traceable. The block chain is a distributed “ledger” — in simple words a kind of “digital cash book”, which shows whether a transaction has actually taken place. At peak times, daily trading with Bitcoin is up to USD 5 billion.
However, in addition to Bitcoin, the market holds other coins with high market capitalization and a derived market share. These include Etherum (ETH); Bitcoin Cash (BCH); Ripple (XRP); Dash; Litecoin (LTC); Monero (XMR); NEO; NEM; IOTA.
PS: At the end of each blog post the topic of the next one is announced — so it’s worth staying tuned!
Next Post: Long-term investments
2.) Long-term investments
As already mentioned in the first article, long-term investments in crypto currencies are more difficult than investments in the classical financial market for various reasons. In order to get closer to the topic of long-term investment, a closer look and deeper research is required, far removed from the media dazzling. At the beginning we have to distinguish what is meant by the term long-term investment. For me personally, an investment turns out to be long-term once it is purchased with the intention not to sell it over the next 12 months. Whether and to what extent the purchase of already established coins turns out to be long-term can be evaluated on the basis of various indicators. On the one hand, the social value of a coin can be determined, i.e. to what extent it improves or positively influences the life of the general public, and on the other hand, the analysis can be approached from a technical perspective. The socially and socially oriented approach may allow a more long-term estimation, which is influenced by a large number of factors that cannot be seen and is therefore described below in terms of the reliability of the technical analysis. Since we are only discussing investments with a long-term time horizon here in the first instance, I would like to refer you to the details regarding crypto trading. At this point we want to dedicate long-term investments, which in my opinion can best be identified within the framework of an ICO. The acronym ICO stands for Initial Coin Offering and can be compared to a traditional IPO (Initial Public Offering = Company gets listet at a stock exchange e.g. NYSE). Since crypto currencies have attracted such a high degree of attention, ICOs have become an increasingly common way of financing. Compared to a classic IPO, ICOs are much simpler both technically and financially. ICOs offer a good opportunity to invest your money on a long-term basis. Nevertheless, it must be pointed out that the majority of ICOs with negative results will leave the market in the long term or will stagnate in the same period. The analysis of an ICO can be carried out from different perspectives. On the one hand, the underlying idea must be analysed in detail and at the same time technical feasibility must be taken into account. The technical feasibility may include the thesis that an ICO will or should finance a technology that enables every private person to fly to Mars. The idea behind this sounds convincing and based on the social plans of the future, but is nevertheless almost impossible for the current state of the art. In addition to the basic technical idea and social influence, the individual competencies of the team behind it must also be examined. Let’s assume a team of five computer scientists and two bankers tries to make the journey to Mars possible for everyone. In this specific case I would advise against an investment, because nobody in the team has competence in the field of space travel or related areas. Furthermore, forecasts must be reviewed by the ICO team. A return promise of 500% can in most cases be regarded as dubious and thus speaking against the investment. In summary, long-term investments in the crypto-currency or crypto-coins market are influenced by countless factors that cannot be assessed seriously at the present time due to a lack of regulation and other factors.