This post is a bit of a quick rant on the basics of cryptocurrencies (crypto) and is just my opinions and not any advice on investing. It started as a response to someone that was interested in learning a bit of the basics of cryptocurrency. Then I got on a roll and covered a bit of ground. It does not contain many references to sources as I was working from memory of information that I have seen or heard.
Pros and Cons
One of the cons with cryptocurrencies is wading through the charlatans and hype out there. Scammers too, malware that tries to copy your crypto addresses as you cut and paste them, always visually confirm and never leak your private addresses in an unsecured environment, they are your money. hype and nonsense out there also applies to trading, investing and mining it. Lots of pros to it. But, it all really depends what you want to do with it. The options typically center around trading,investing,mining it and using it as a payment method. I’ll work through the list a bit and build my case for crypto as I move along. Mining a coin such as ETH ,is not profitable for most people at the moment, Currently electricity and equipment costs factor into this heavily. However this may change in the future as ETH will be moved from a proof of work to a proof of stake model (a bit much to explain in this intro, but if you go to the site name for the creator of Bitcoin, Nakamoto.com, there is a whole intro to cryptocurrency series of posts there), with ETH 2.0, along with other changes. Using it as a payment method is getting simpler every day, there are numerous apps for it, Cash App and Coinbase for example. PayPal and Venmo will be integrating crypto purchases into there systems.
Fundamentals
What is going on that may cause prices to rise
People in Europe that work on the underpinnings of the banking system that allows money to move around under the hood, kind of like our ACH system here in the US are working with the folks who developed the crypto called LINK. This has leaked out, I saw the presentation where the guy giving it slipped and said the name that LINK uses in it’s code instead of the secret project name that they were using to cover up LINK’s involvement. These projects are typically secret with NDA’s and all but, human error and a slip of the tongue can happen. The US Gov’t, Treasury Dept. has hired the person that developed the stable coin called USDC for Coinbase. He worked for a bank prior to Coinbase, the name I can’t remember, but there is a picture of him with 2 other co workers that now work in the Treasury Dept. so he was most likely hired because he was the lead in developing the USDC stable coin for Coinbase. A stable coin is a coin that attempts to stay in lockstep with a fiat currency. USDC is always $1, some others ary a little bit around $1, like a range a few pennies up and down at most. Examples are Tether and DAI. On top the Gov’t reserach into an electronic coin, there was initial language in the draft for the stimulus package that was removed that reference disbursing payments using electronic coins developed by the US Gov’t. I saw copies of this, it was interesting to see a reference to an electronic coin in a gov’t doc. Also, large banks are starting to work to become custodians for crypto currencies as well, they are entering into agreements with exchanges to be the custodians of large amount of crypto. BTC futures are traded on the Chicago exchange (Chicago Mercantile Exchange), something the big boys in the investment banks are interested in. There is something called BAKKT that the investment banks are working on, I forgot the details but, it relates to cryptocurrencies Why does this matter? This is all a big pro. Because governments adopting blockchain technology, Investment banks are starting to use crypto as an investment vehicle and considering being custodians of it and integrating blockchain tech into transactions. All of this validates it’s existence, which means only more growth in the future as people (investors really and end users eventually) realize it is not some kind of fad and a toy for tech hobbyists. Remember the curve of other tech. The first home computers were also “toys” and now we can’t live without (several of them, think phones too) them, the same will happen with crypto currencies in time. As far as investing in it. A big pro is that it is a new asset class in the world. Every time a new asset class comes into being it makes for a great investment opportunity as new asset classes don’t some along often.
Cryptocurrencies as Technology
Trading and Investing
Cryptocurrencies behave a lot like a new technology in that there is an exponential growth curve which is reflected in the price. ETH could be bought for around $10 in 2016-17 and today it is worth over $300 with recent highs above $400. Weekly time-frame Ichimoku chart has a target at $750 within the next year most likely. Trading and investing are similar but, two different animals. A con with trading in general that does not occur as easy with investing is that it is easy to lose money trading for a lot of reasons, as a beginner. Most of them have less to do with proficiency and the mechanics of trading and more to do with emotional factors, especially how we view money itself. The market it a brutal but honest teacher at times and it will teach you how to look at your belief system. And, it is always your fault when you lose, the market never lies, only we can lie to ourselves. In the beginning I wish I would have spent a bit more time learning this versus spending most of my allotted learning time on technical analysis. I have found quite a few good time tested resources on the trading topic if you are interested. Always start with a few hundred $ and work up slowly until the charts stop looking like just a bunch of lines and start to intuitively make sense and your heart no longer drops every time the prices go red. It’s as if you have to develop a Zen or Taoist attitude to the market. Start with something really simple for a trading rule and stick to it. The more simple and boring the better until you get experience. And, on a longer time frame, daily and weekly charts, not less than hourly charts to start. In the limit as time –> 0 the charts become just noise which can cause confusion at best. Crypto has much more volatility than many other asset classes, so more noise there too. Especially the small cap coins, up 100% one day, down the next and as usual it takes double the gain to make up for a loss of half, so losses mount fast in downward price shocks. BTC and ETH, being large cap are less volatile than the rest, about 3000 of them, some of which are a joke (literally DOGE and Siraj coin are memes) and really have no future at all, Big pro. Investing for the long haul is one of the easiest easy options to start that can even be combined with trading/active investing. One of the best methods to invest in an asset with exponential growth is to accumulate the asset when the price is below the 1 year to 2 year average price and then distribute out at a price that is a multiple (2,3,5) of the 1-2 year moving average. Golden Ratio Multiplier Chart. This is an almost foolproof way to actively invest and could be used to dollar cost average in at the best times. Feel free to reach out to me for any more and research. I would highly recommend listening the Lex Fridman podcast where he interviews Vitalik Buterin the co-creator of ETH to get a flavor of the mind of who is behind it.
