Investing vs. gambling in cryptocurrencies
Warning: Never take financial advice from random people on the Internet. Do your own due diligence.
Investment in disruptive technologies is somewhat a speculative operation in that the investor believes in something that hasn't yet been proven to indeed change the existing ecosystem. Investment in blockchain technology can, quite symmetrically, be compared to the investment in consumer Internet in the early 90s. By then, it hadn't been realized how Internet could revolutionize communications. Those who believed in technology and invested on it made fortune. They participated in a calculated gambling and won. Not all participants actually won, though! Remember the dot-com bubble? There were shit-coms; now there are some shit-coins. Stocking of crypto can be either investment or gambling depending on whether the investor conducted necessary analysis before investing. Though crypto market is abnormally volatile, traditional investment strategies must still rule the game.
Volatile crypto market
Everyone is aware of it; some of the reasons include:
- Novelty
Cryptos are still something of a novelty. Value is established without people thinking twice. A big number of investors just follow the crowd. - Downward pressure from mining:
Due to mining profitability and many other reasons miners switch between coin resulting in a fluctuation of supply and price. - Upward pressure:
Are there reasons to hold a coin? Or would you be better off exchanging it for another? Such pressure actually depends on what is happening to the coin.
As each of the reasons is influenced by others, small changes create big fluctuations in market.
Investment in crypto and things to consider before investing
Apart from having just enough cash on hand to handle recurring transactions and short-term spending, holding cash as part of a long-term investment is in fact a bad idea. Cash in a long-term investment portfolio should be minimized because its value will likely be eroded by inflation. In addition, to become financially independent and attain goals, we need to invest in some way or other. Consider the the below points, among other, before investing on cryptos.
- Invest in what you believe
Do you believe in blockchain technology? Blockchains are secure databases by design. The concept was introduced in 2008 by Satoshi Nakamoto, and then implemented for the first time in 2009 as part of the digital bitcoin currency; the blockchain serves as the public ledger for all bitcoin transactions. By using a blockchain system, bitcoin was the first digital currency to solve the double spending problem (unlike physical coins or tokens, electronic files can be duplicated and spent twice) without the use of an authoritative body or central server. This technology can wipe out existing financial system. - Understand the crypto
Not all blockchain based currency is worth investing. By understanding I do not mean being able to run a newly released coin's cli-interface or something. I mean the economics, knowing details about the crypto - whitepaper, development team, developer fee, pre-mined coins, ICO (Initial Coin Offering), emission rate, coins usage and much more info. You can spend hundreds of hours on just one coin. - Would I use the crypto myself?
This is an excellent point to test usefulness of a crypto. I already use SIA, the decentralized cloud storage, and MYST, decentralized VPN service. - Would other users use the crypto?
Value comes from how widely a currency is used, accepted and can be exchanged. Others need to have demand for the crypocurrency. How many users do you think will be using GOLEM or IOTA in the era of machine learning, graphics intensive movies, big data, etc.? - Incentives for investment
Do you cash lying under bed? Or do you need to borrow to invest in crypto? Borrowing and then investing financial asset is called carry trading. Consider risk and rewards. - Wait for the right moment
Pick a few cryptos, study them and evaluate them. Ask yourself, how much would you pay for the functionalities/opportunities the coin offers at current market price? without specifically paying attention to market price. Pick cryptos that you think are undervalued. Evaluate in terms of value, not market price - Accept mistakes
Find out reasons why your investment depreciating. If you find valid reasons, release that assets. EXIT! Accept the losses. - Diversify
This is probably rule # 1. Have a portfolio consisting of coins based on varying technology and aimed at varying applications.
A good thing to remember when taking the advice above (and I'm a believer in taking advice...for trading...not investing) is that these methods of selecting and staying in a coin are long-term plays.
This should not be confused with TRADING...which is a zero-sum game. Investing is not however.
If anyone is interested in learning how to trade crypto...i recommend @lonnie.sprinkles
...cuz he is me...and I've been trading for a decade...and I know my shit at this point! ha
Great article though...this should help a lot of people make better decisions...rather than based on greed and fear.
Good work...appreciate the effort you put in to making this post!
I agree. I've traded on Forex for over 8 years and recently moved to Cryptos. I can comfortably state that Cryptos are much easier to trade and invest than Fiat.
That stated, please remember that the best trades are not from looking for a 5 minute scalp, but rather swing trades, lasting between 1-5 months. Investing will place your projection toward 1-10+ years, with first observing the whitepaper to ensure that what you are investing in will have
1.) Long-term sustainability.
2.) Use-case that is solid and WILL be put into place to resolve a long-standing issue/pain point within society.
Take Steemit for example: Decentralized Social Media Platform that resolves the following pain-points of:
1.) Making money online WITH Compounding Interest
2.) Decentralized so your information is not hoarded for sale to others.
3.) Freedom to express who you are as a person and be rewarded.
4.) Entry level into the crypto world and investing.
5.) Environment that encourages interaction rather than alienation and cross-recruiting
6.) No team-building & MLM's to deal with.
Short term trades are definitely not the best trades. How could they be? They're too short! haha.
Good points about Steemit! I have a very long term view on Steem. I doubt the best things have even been thought of yet.
Cryptos are definitely more enjoyable to trade than Forex I think. And in the long run, it's better to have crypto knowledge than forex.
And to circle back to the first point...no, the best trades aren't short term, but many, if not most, of the best trading systems are based off short term gains. Crypto allows you to compound these gains perfectly...which I think should be the focus, rather than on straight-line large gains!
Nice post. Thank you :)
i am new and about to invest -- good post - i am now a follower
Welcome! I'm hoping to provide some more useful stuff.
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Delighted!
I always like to invest in cryptos that i use myself. I think that way you can get an honest look at the technology. Great read by the way!
Usability is what a coin derives value from.
no it is not. I mean it would be in a perfect world, but we are not living in a one. So what makes a coin valuable is, how good or poor marketing it has - that is how average Joe or Marry appreciate it and decide to or not to invest into it. This creates, after some time, if the marketing is still good and people keep hearing about certain coin how it will go to the moon, the so called FOMO effect, so more people invest in it. They invest without knowing a shit about the team behind the coin, without having read the whitepaper, whitout having instaled wallet for the coin etc...The coin is raising though and after some time it falls. Last but not least we have FUD makers here and big whales who just pump and dupm some coin. So you never can tell, that some coin is doing great because it has great usability and other coin does not, because it lacks of usability. As example take a look at BTC, ETH or LTC - slow, sometimes it can take hours to transfer those, big transaction costs and at the top of all, they need to be mined, which is not very enviromental friendly - still they belong to the most valued coins at the market...
great post, thank you
You're welcome!
This was a solid read. Thanks for your insights!
Glad you liked it :)
Solid content, looking forward to follow!
MYST and SIA are actually genuine technologies that I believe in. The former is a decentralized VPN, and the latter is a decentralized cloud. Both cryptos have a purpose in the future as our privacy on the internet continues to be invaded more and more...