Do Not Fear Investing In Cryptocurrency
Even after the last big crash
Before I get into this post let me start by saying I believe that investing in Cryptocurrency is a winning strategy for building wealth in the mid to long-term.
Cryptocurrency is still so early in its adoption, that an investment in the right coins could dramatically alter someone’s wealth in the next 5 years.
This post paints as simplified of a story as I am willing to tell about the ups and downs of the last year.
I go into:
- Why the crypto-market crashed
- Why it is still down
- Where I think things are going in the future
- What my own portfolio looks like
- What resources are out there to get involved
“I am very intrigued by Bitcoin. It has all the signs. Paradigm shift, hackers love it, yet it’s derided as a toy. Just like microcomputers.” — Paul Graham
At the end of last year (2017) Cryptocurrency was the hottest topic in the world.
Bitcoin hit $20,000 creating a new wave of millionaires. Everyone wanted a piece of the cryptocurrency pie, and ICO’s were springing up faster than anyone could keep track. The bubble was born.
Then the new year came, and with the new year came a bursting of that bubble. Scams ran rampant, fortunes were made and lost overnight. Volatility reigned.
Bitcoin dropped from $20,000 down to $17,000, then down to $12,000, and now rests at $6,500.
Every other cryptocurrency followed suit, as money had to flow through bitcoin to get in or out of the market.
Coinbase, the reigning exchange, and onramp for most fiat currency faced insider trading allegations (which later proved insubstantial) and shut their digital doors to new coins for the first half of the year.
When the Crypto Market Cap dropped from $700 billion down to $400 billion, the craze slowly started to die off.
Many of the cryptocurrency communities I was a part of died off too.
No one seemed to want to talk much about the top projects in the space. The reigning dialogue surrounded the “doom of bitcoin” or the “eventual return to $20,000.”
The get rich quick kids had moved on.
Is Cryptocurrency done with?
The Bubble that Burst — Act I
Last year was really interesting on many levels.
So many pundits called Bitcoin a “bubble.”
I disagree with this.
There was a bubble though, a bubble around ICOs.
The “Initial Coin Offering” bubble
To put it simply, this was a wave of different groups launching new coins aimed at changing the world a million different ways.
To get access to this ICO, you would buy into a “pre-sale” and send the group Bitcoin or Ethereum, in exchange for a usually large number of their new “token.”
Most ICOs offered a private sale to Venture Capital and Angel investors and then opened up the pre-sale to the general public. Bitcoin and Ether would flow into these projects, turning the project team into millionaires.
Most ICOs looked to raise several million dollars. Some ICOs raised several BILLION dollars. Holy shit.
The common formula that followed went something like this. An ICO would release all of its tokens to the buyers, the coin would eventually get added to an exchange. The price would spike dramatically as people bought the token on the exchange, then the ICO buyers would sell, earning many times what they invested.
This made a lot of people a lot of money.
The problem was that many of these projects NEVER CREATED ANYTHING OF VALUE. All of the value that was derived from their token, was pure speculation.
The crypto community called these coins “shitcoins.”
One of the reason Bitcoin grew to $20,000, is that it was the primary means by which new investors would put their fiat currency into the market. Bitcoin was then used to buy into many of these ICOs, giving it value as a medium of exchange.
The more ICOs that occurred, the more important Bitcoin became for this niche economy.
So what ended up happening is that in early 2018 the price of Bitcoin reached that epic $20,000 mark.
Around the same time, the crypto communities were starting to make a lot of noise about a lot of project scams.
The largest investors, with millions of dollars in the crypto market, often called whales, cashed out some of their holdings.
This caused Bitcoin to drop a little, which spooked the market, causing thousands of investors to sell their “shitcoins” for Bitcoin, and then their Bitcoin for fiat.
This caused the market to crash. The crashing market scared more people, and more people sold, causing a larger crash.
Over and over and over again this happened. Companies launching ICOs stopped allowing public pre-sales. The cycle of inflating the market had closed.
The ICO bubble had burst.
This is a gross summarization and over-simplification of what happened, but the point is the ICO bubble grew and popped and put the world on notice of the potential power of Cryptocurrency.
If we are telling the story of cryptocurrency, then this ICO bubble bursting is the end of Act 1.
Act 2 has begun, and it is the Act of Regulation.
Regulation — Act II
I constantly hear people on twitter asking “When is the institutional money coming?” followed by someone claiming that the newest news signals the entrance of the Wall Street Money!
Institutional Investors are already in the game. At least in part. Many of the largest brokerage firms in the world have task forces set up to research and implement crypto products for their clients.
Investors can currently invest in Bitcoin futures, or purchase Bitcoin OTC, which can stand for “Over the counter,” or “Off the chain.” These purchases can be massive and do not affect the price of Bitcoin at all.
The point is, there is not going to be a wave of money flowing into Cryptocurrency that will dramatically skyrocket the price again. At least not right now.
Right now, the big dogs are staying silent on the sidelines while pushing for the adoption of other types of Crypto-products by the SEC, such as a Bitcoin ETF.
Now let me be clear, a Bitcoin ETF is going to happen. Eventually. When will it happen? I have no idea. No one does, except for maybe the SEC.
They are notorious for pushing back important decisions like this for months, sometimes years.
Institutional Adoption??? — Act III
Who can know for sure?
If I were to make an educated guess, I would say that once the Crypto community, Project leads, and governments of the world figure out how to regulate blockchain in a meaningful way, we will see a lot more adoption and much deeper market penetration.
The next act will likely be the “Inflation Hedge” act.
Eventually, another economic depression will hit someplace large enough to bring down global equity markets.
Wall Street knows this and has hedges in place to offset their losses. The more regulated and mature the crypto market is when that happens, the more money will be stored there.
If anything ever happens to major currencies like the US Dollar or the Euro such as hyperinflation, the businesses of the world will look towards their stakes in Cryptocurrency and start moving away from the volatile fiat currencies.
Cryptocurrency is a hedge against an economic depression in a similar way that precious metals like Gold and Silver are.
It just depends on what camp you are in. What holds more value to you, personally? Gold, or Cryptocurrency.
What is the future more likely to adopt? What has more utility?
In My Opinion, there is a Large Opportunity Right Now
Right now prices are low. About as low as they were before the massive spike last year due to the beginning of the ICO bubble.
Prices are likely to go back up.
I have nothing to sell you, other than on the opinion that Cryptocurrency will never go away, and over time will increase in value as:
- Regulation is implemented making scams illegal and publishable
- More Fiat pairs are added making it easier to get money in and out of the market
- As investing products are approved by the SEC, giving institutions more options and more leverage in the crypto markets
- As decentralized exchange technology increases in adoption, allowing for wallet to wallet transactions across all blockchains
- As technology improves, allowing ease of use, reliable security, and more use cases
- As prices stabilize
These are just a few reasons.
The facts:
- Coinbase subscribers continue to increase by huge amounts. 50,000 users per month as of August 2018.
- The hash rates of miners continue to go up each month.
Why are these two points relevant? Coinbase is considered the gold standard for safely getting your money into and out of the Cryptocurrency market.
Hash rates are just the amount of computing power being devoted to processing cryptocurrency transactions.
These are both indicators of increased adoption of Cryptocurrency, not less adoption.
I can’t and won’t tell you when prices will go back up. I can’t and won’t tell you that prices won’t plummet again.
What I can tell you with relative certainty is that prices will eventually start going back upvand that blockchain technology and cryptocurrency, in general, is here to stay.
It is my opinion that prices on the best coins, the coins that are likely to survive, are starting to reach a bottom.
Right now there is a consolidation happening. Where money is starting to move away from the shitcoins and into projects with a higher likelihood of success.
This is happening slowly right now, but I anticipate this will pick up as the poor projects fail and their investors lose faith and sell, or the mining pools move elsewhere.
Which coins have a good chance?
I will answer this question in this section, but I need to make it clear that I am not a Financial Advisor. I have no accreditation in finance, economics, or banking. My advice is not legally actionable.
What I can tell you is how I look for the coins and projects that don’t suck and then tell you what coins and projects I have personally invested in.
You can glean what you will from my transparency. Just know that I have no legal fiduciary duty to you.
I am in the business of providing value, so I always act as if I have a fiduciary duty to my readers to provide the most valuable content.
And on and on I ramble.
How to spot the best projects:
- They are solving a real problem that can add huge value
- The projects have strong teams
- Those teams are “always shipping,” meaning they release updates consistently
- There is a clear and concise governance model around their project and how it will be used to build the future of the project
- They have strong advisors and strong investors
Projects that have all of these bullet points checked have the best chance of surviving in the long run.
Projects that survive the long run will gain immensely in value since the money that is spread out across all the shitcoins currently will consolidate and become focused among the real projects.
Projects I have holdings in and am wildly confident in for long-term survival:
- 0x (ZRX)
- Bitcoin (BTC)
- Ethereum (ETH)
- Zcash (ZEC)
Projects I have holdings in and have a high potential upside:
- Stellar Lumens (XLM)
- EOS
- Decred (DCR)
I could go into detail as to why I own any of these, but for this post, it would be a waste of words. If you are personally interested in why I hold these assets, I write a monthly newsletter on my website called the Crypto Chronicle.
Furthermore, I am a small fish in a massive pond. There is no way I can know what coins will and won’t succeed, but I pay attention. Not that this matters at all, but I correctly predicted that 0x, ZEC and XLM would be added to Coinbase.
All the signs were on the wall. If you knew where to look.
Anyway, if you want to get involved in this stuff, here are some worthwhile resources.
Resources
Well, if you’ve read this far chances are you want to know more about this wild world of Cryptocurrency.
So I have built a small list of resources you can use to get started.
Coinbase Suite of Tools
The Coinbase Suite of Tools should be the starting place for anyone wanting to dip their toes in the water of this space.
Coinbase as a company is constantly improving their offerings to make getting involved in Cryptocurrency easier for the average consumer.
Some of their products include:
- Coinbase App (BTC, BCH, ETH, ETC, and LTC wallet and exchange)
- Coinbase Wallet (Ethereum and Token wallet)
- Coinbase Pro — web browser exchange with more functionality that the Coinbase App
- Paradex — a 0x protocol Relayer offering wallet to wallet trading, and shared liquidity with the 0x Relayer Network
If you’re curious, check them out here.
Other Exchanges of Note
Coinbase currently does not offer a wide range of assets.
Many of the assets I own are not currently supported by Coinbase.
So, there are other great exchanges out there that offer a wider range of assets.
Binance
This is the worldwide leader for transaction volume and overall liquidity. The offer dozens of coins, including all but maybe one of the coins I own.
As of this writing, you cannot use this exchange unless you already own Bitcoin or other digital assets bought from another exchange.
Get started with Binance here.
Kraken
I used to swear by Kraken. They allow fiat pairs with and allow fiat deposits. They also have a much larger offering of assets than Coinbase does.
But alas, they have disappointed me many times with poor user experience and poor customer service. I’ve heard similar complaints made against Coinbase and Binance, but I have never experienced it.
What Kraken is though, is safe. Owning crypto assets is risky, especially if you choose to keep them on an exchange. Coinbase, Kraken, and Binance are the three safest options in my opinion.
Hardware Wallets
These are physical pieces of hardware that act as a private key to unlock your cryptocurrency.
This is a more advanced level of security and makes it very difficult, if impossible to hack.
There are really only two hardware wallets worth mentioning in my opinion.
- The Ledger Nano S (the one I own)
- The Trezor wallet
If you decide to go this route, please buy them from their manufacturer’s website. I love Amazon, but it’s very important you make sure this hardware has not been tampered with.
Cointracker.io
This is one of my favorite tools.
This website keeps track of all of my crypto assets, transactions, etc. and allows me to track my overall portfolio in one place.
It integrates with all the major exchanges, and can even help you do your taxes at the end of the year.
They also have a gorgeous phone app.
Should I write more articles on Cryptocurrency?
This is a space that I have a large passion for, but haven’t really expressed it outwardly in the form of writing.
I’ve made a small course for some friends, but otherwise have kept my digital mouth shut.
If there is interest I would be delighted to start writing more articles on this fascinating topic.
Let me know!
