Disclaimer: The information in this blog represents the opinions of its author and is for educational purposes only. It is not intended as investment advice. Cryptocurrency markets are extremely risky so you should only invest money you are willing to lose.
Not A Monolith
The mainstream media gets it all wrong. They talk about investing in cryptocurrency as if it were a single stock, or a sector of the market. Most mainstream investment advice consists of "put a small percentage of your portfolio in cryptocurrency, diversify by buying a few different coins".
Cryptocurrency is not a monolith, in fact it is more like a labyrinthine rabbit hole filled with more rabbit holes. It is an entire ecosystem that is already replacing (to the tune of half-a-trillion dollars) a chunk of the traditional global financial system.
Talking about investing in "cryptocurrency" is like talking about playing "sports". Mixed Martial Arts Fighting is a far cry from Rock Climbing, which is worlds away from Bowling - well, you get the idea.
The potential applications of blockchain are so myriad and diverse that it makes no sense to talk about investing in cryptocurrency as if it were a single entity. (if you, like most people, start feeling drowsy when you hear the word "blockchain", wake up and read on)
This Rabbit Hole Is The Future
We're not talking about a rabbit hole filled with a bunch of worthless coins. Blockchain is the self-verifying peer-to-peer architecture that allows for the creation of trustless systems. The only trust required is trust in the math.
Eliminating the need for trusted third parties is a very big deal. Think about what eliminating the middleman actually means in real-world terms.
The Power of Peer-to-Peer
Amazon revolutionized the supply chain, essentially eliminating the middleman, and they now undisputedly dominate retail. Uber knocked out the third-party, vehicle-owning cab company, and Airbnb replaced the property-owning hotel chain. They now dominate transportation and accomodation services in the ENTIRE WORLD.
That simple fact is the most compelling evidence of the power of peer-to-peer systems: the world's largest taxi company doesn't own a car, and the world's largest accommodation provider owns no property - WOW.
Seeing A Pattern?
Are you starting to see a pattern here? Self-verifying peer-to-peer systems can be utilized to do almost anything - and we're not talking about some pie-in-the-sky fantasy - these systems are the future and the future is here .... now.
The Smart Way
The smart way for the beginner to start investing in the crypto space is a general investment in blockchain technology itself, and then identify a few niches and look for top performers in each.
The Build-Your-Own-Blockchain Cryptocurrency
Ethereum, (the currency is actually called "ether") is the native crypto that powers the ethereum network - one that allows anyone to build their own blockchain applications. Self-verifying data is only part of the magic of blockchain. The ethereum network is also designed to facilitate the creation of smart contracts which, like robot lawyers, can automatically execute the terms of complex agreements when specific conditions are met.
The cryptocurrency has been on a tear this year, multiplying in value more than 70x (see chart above). It currently holds the #2 spot behind bitcoin with a market cap of $72 billion, and a max supply of 96 million ether.
It's no secret that bitcoin's got issues. It's slow, inefficient, expensive, and power-hungry, not to mention the privacy issues. Instead of weaknesses, look at each of these issues as an opportunity.
Pick one of those issues, find the niche in the cryptocurrency space that's trying to solve it and then identify the top performers - those that are expropriating a significant portion of the total market cap flowing into the crypto-space. There are several altcoins you can invest in now that were built from the ground up to specifically solve each one of those problems.
Follow The Money
We like this strategy - when bitcoin or ethereum price is declining, do a side-by-side price analysis of the altcoins in a particular niche which are ascending in price. That will give you a good indication of how the crypto-market-cap flows from the major players into a particular crypto-niche.
In the chart above we did just that for the cryptos that were designed for speedy transaction times - litecoin, dash, and bitcoin cash. This side-by-side technical price analysis is the rational, mathematical way to identify top performers in a niche that are addressing a particular problem that you consider important as an investor. See our previous post for more detail on the speedy micro-cryptos. In our next post, we analyze the privacy-centric crypto-niche.