Cryptocurrency is the new investment hype
In 2010, bitcoin was $0.08. Now in 2017, bitcoin hit $6000. Buyer’s remorse anyone?
All of a sudden overnight, people started talking about bitcoin and cryptocurrencies. Documentaries on Netflix and YouTube started popping up.
Just like the dot-com days and the beginning of the internet, there’s people saying that it’s the new future of currency. Others say it’s just a bubble waiting to pop.
So how do you know whether this cryptocurrency is a good investment or not?
The truth is you don’t know 100% and you probably will never know until it’s too late. But we can take a calculated risk with the information we do have.
So today I wanted to give you my opinion on cryptocurrencies and help you decide whether cryptocurrency is a good investment or not. Even though I’m still new, but I wanted to share everything I learned over the weekend.
Ask the right questions
Imagine you’re an investor on Shark Tank. Someone comes up with no idea or business plan. You give them $100,000. Is this a good investment? Fuck no.
No one is going to give you “free money”. People pay to have their problems solved. Think about purchases you’ve made.
Maybe it was a car for your job, your Netflix subscription for when you’re bored, or the new iPhone to help us snap that “perfect” dick pic to Netflix and chill.
So the real question is what problems do bitcoin and cryptocurrency solve?
“This is the ENTIRE reason for cryptocurrency: avoid governments, borders, middlemen, extra transaction costs. As well as have high security and avoid forgery.” -James Altucher
You can’t hand someone a fake bitcoin like you can with US $100 bills. You can’t create more bitcoins after 21 million. With each transaction, your identity is encrypted. When someone steals your wallet, they can’t rob you of your bitcoins.
…and as more cryptocurrencies come out, the good ones will continue to solve problems. For example…
One unique thing about Ethereum is the use of “smart contracts”.
“Smart contracts help you exchange money, property, shares, or anything of value in a transparent, conflict-free way while avoiding the services of a middleman.” –BlockGeeks.com
This technology has the potential to replace lawyers, saving people a shit ton of money.
But is there a real demand for cryptocurrency? Do people care?
That is harder to say, especially since it’s still early. It’s still a pain in the ass to exchange goods and services for cryptocurrency.
But with growing distrust for government, traditional banking systems, and fees, I would say it’s a safe bet to say people are looking for alternatives.
And with the growing popularity, hopefully one of the following happens…
- A country says “Fuck it. We’re just replace our currency with cryptocurrency”
- A big retailer like Amazon starts accepting it
- Big banks start jumping into it
Remember to ask “what problem does it solve and do people care?”
Stop looking for the “best” coin
Earlier I mentioned bitcoin, but there’s other digital currencies out there… in fact right now there are 1000+ alt coins AKA bitcoin alternatives.
Most of these coins will go bust.
It’s just like the dot-com days where everyone was creating websites. Then the bubble happened. The scams disappeared overnight and sites like Amazon and Google stayed and grew into giants.
Right now in the crypto world, the everyone is creating alt coins. But a lot of them are scams.
Some are created so they can steal your money. Others are formed like multilevel marketing schemes of the past where you can build your tree or pyramid.
How do you go about filtering out the good coins from the bad?
Ask yourself… does this actually solve a problem or does this just benefit the guy who created the currency?
Remember how I said that most coins will go bust?
That’s why it’s important to create a diversified portfolio. Just like with the stock market, you never know when one coin might go bust.
How do you create a portfolio?
- Buy multiple coins (Bitcoin, Litecoin, Ethereum, etc…)
- Invest in the technology that backs cryptocurrency
Here’s an example of investing into the technology.
- Every transaction needs to be verified by “miners” or computers.
- Miners get a rewarded for verifying transactions.
- Miners want a faster chip to verify more transactions and make more money.
One of the popular companies for making these chips? Nvidia.
If you look at the performance for Nvidia, it’s been soaring. So I invested in Nvidia stock through Robinhood. Shameless affiliate link. Keep in mind this is in addition to my Vanguard ETFs and index funds.
If you’re scared of investing directly into cryptocurrency then you can invest in the technologies that support it… like blockchain technology.
Stop looking for the “best” coin. Create a portfolio instead.
Create a strategy
Recently I stopped making progress at the gym and kept blaming myself for it.
“I just need to suck it up and push harder!”
So I did that. And the worst thing happened. I got weaker. So I changed my workout routine to 5-3-1. Strength and progress came back. After that moment, I had a realization.
We blame ourselves a lot of the time for not getting the results we want. But often times it’s not us that is the problem, but it’s our strategy. Rather than blaming ourselves for making the “wrong” decision, maybe we should look at the strategy.
The same principle can be applied to cryptocurrency. So what strategy am I using for cryptocurrency?
- Every month, I set aside a set amount of money and invest into the big 3 (Litecoin, Bitcoin, Ethereum) AKA dollar cost averaging
- Look for arbitrage opportunities (ICOs)
- Do this over and over to compound money
You can do this by finding ICOs or Initial Coin Offerings, when cryptocurrency creators sell their new currency to investors. I’m oversimplifying this. The hardest part is identifying the opportunities.
Is this strategy going to work? We’ll find out, but having a foundation allows us to tweak the strategy as needed.
It’s also important to mention that cryptocurrency is still in it’s early stages and extremely volatile. Knowing this, I only invest with money that I’m comfortable losing.
…which leads me to my last point.
Mistakes are part of the process
Do you know someone who always has to be 100% certain that something is going to work before they even start anything?
They might say “It looks good, but I don’t know if it’s going to go anywhere.”
Isn’t the whole point of trying something new to see if it’s going to go somewhere?
One person that comes to mind actually is my dad. He doubted and criticized everything. So when my uncle told my dad to invest in the stock market, I wasn’t surprised.
My dad kept his money in the bank out of fear and uncertainty. He missed out on all the returns during the Clinton years. He kept saying… “You never know. You might lose all your money.”
My dad wasn’t wrong. Even though it’s technically a possibility, here’s the thing that my dad didn’t realize…
Instead of worrying that something won’t succeed, you have to accept the fact that somethings just won’t work out.
If nothing works out, you always can try something else. So why not take more “swings”? No one says you have to do it forever. Anyways if life was 100% predictable, it wouldn’t be fun.
That’s what makes cryptocurrency fun. I don’t know 100% whether it’s a bubble waiting to pop or if it’s the “future of currency”. But here’s the thing.
I’ve done the research. I’m willing to take a “swing” on a calculated risk, make mistakes, and take a chance. The upside could impact my family and future generations.
So let me know, what are your thoughts about cryptocurrency. Is it a bubble or the future of currency? Are you going to take a “swing” or take a pass?
Let me know in the comments.
Until next time,
Kevin the Refugee