CryptocurrencyInvesting

The Smart Way To Invest In Cryptocurrency

By December 27, 2017 No Comments
No it's not buying the coin with the badass name, or the one pitched by your celebrity heartthrob. Nor is it buying the cheapest one and hoping it'll be worth a nickel someday. The crypto-verse can seem like a labyrinthine rabbit hole filled with rabbit holes. You don't get it and it's not your fault - the mainstream media doesn't get it either. There is a rational, data-driven, research-based way to approach investing in this bizarro world of the future - let us break it down for you.

No it's not buying the coin with the badass name, or the one pitched by your celebrity heartthrob. Nor is it buying the cheapest one and hoping it'll be worth a nickel someday. The crypto-verse can seem like a labyrinthine rabbit hole filled with rabbit holes. You don't get it and it's not your fault - the mainstream media doesn't get it either. There is a rational, data-driven, research-based way to approach investing in this bizarro world of the future - let us break it down for you.

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.

Playing "Sports"

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)

If your eyes glaze over when talk turns to "blockchain" and "peer-to-peer" technology, think about Airbnb - the world's largest accommodation provider that doesn't own any property, or Uber, the biggest taxi company without a single car - they're already dominating globally with peer-to-peer systems.  Blockchain is the future of almost anything you can imagine - and it's here now.

If your eyes glaze over when talk turns to "blockchain" and "peer-to-peer" technology - we feel ya - but think about Airbnb - the world's largest accommodation provider that doesn't own any property, or Uber, the biggest taxi company without a single car - they're already dominating globally with peer-to-peer systems. Blockchain is the future of almost anything you can imagine - and it's here now.

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.

Clueless about blockchain?    You can still profit from it.  Ethereum, the build-your-own-blockchain cryptocurrency has more than 70xd in value this year.  So if your eyes glaze over when you hear the words "peer-to-peer" and "blockchain",  just imagine that almost anything you care about can be structured better or facilitated with a self-verifying, peer-to-peer blockchain-based system.  And it's not all about money, banking, and business.  Philanthropy? Global warming? Food safety? Space colonization? Third-world hunger and disease? Healthcare? The list goes on and on....  It would be pretty hard to name something that couldn't be improved with a self-verifying, peer-to-peer system.

Clueless about blockchain? You can still profit from it. Ethereum, the build-your-own-blockchain cryptocurrency has more than 70x'd in value this year. So if your eyes glaze over when you hear the words "peer-to-peer" and "blockchain", just imagine that almost anything you care about can be structured better or facilitated with a self-verifying, peer-to-peer blockchain-based system. And it's not all about money, banking, and business. Philanthropy? Global warming? Food safety? Space colonization? Third-world hunger and disease? Healthcare? The list goes on and on.... It would be pretty hard to name something that couldn't be improved with a self-verifying, peer-to-peer system.

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.

Speculation, value storage, investment in blockchain - all good reasons to join the half-a-trillion dollars in the crypto-sphere. But which coin will fulfill the promise of bringing value-transfer-stability and financial services to the billions of people living in the unbanked worlld? A lot is riding on the answer so we did a mathematical technical analysis to shed some light on the subject.

Speedier than bitcoin:  If bitcoin ever hopes to be the global borderless currency for small transactions, it will have to process way more than 7 transactions per second (and that's on a good day).  Litecoin, dash, and bitcoin cash were all designed from the ground up for speedy transactions.  Bitcoin cash with bigger blocks, litecoin with off-chain transactions, and dash with instant send.  As the chart shows, they were all ascendant during bitcoin's price decline.  The smart investor can follow the money to see who's likely to win this race for speed.  chart: coinigy.com, technical analysis: digitalassetuniversity.com

Issues

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.

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