Short answer is NO! But it’s only a no if you want the short answer. The longer answer is there is definitely value to what cryptocurrencies provide, but you have to understand the risks.
Disclaimer: In this article are my thoughts and opinions on investing. Whether you choose to invest is your decision and I am not liable (nor should i be) for any losses.
Quick, What’s Bitcoin and Cryptocurrency?
Bitcoin is a decentralized digital online currency that was released starting 2009. Basically it is an open source software that has applications that can be used as a form of currency. It relies on a decentralized set of peers and lots of cryptology that must agree on the set of rules and procedures for authenticating transactions that go into a ledger called the blockchain. Bitcoins are created and rewarded to “miners” through a process of authenticating transactions which solve complex mathematic problems in order to regulate the speed in which new bitcoins are created.
The basic principles of Bitcoin:
- Decentralized: No federal reserve, government, or banks controlling and tinkering how money is handled
- Anonymity: Bitcoin transactions only record the sender and receiver’s wallets which alone don’t have any identifying information. Although since all transactions are recorded in the blockchain, some forensics could lead back to a user if you don’t take precautions.
- Inflation proof: There is a set schedule for when new Bitcoins are added and at some point in time, no more coins will be created. Last coins to be minted in 2140 and total bitcoins will reach 21 million.
In other words, it’s like a digital version of cash that you can spend or horde as you choose without anyone knowing.
Why Do People Want Cryptocurrencies?
- Some people require/embrace the anonymity such as tax evaders and people conducting illegal activities. They can conduct their business with a minimal paper trail.
- Some don’t want regulations and control on their money like libertarians.
- Others, in some countries more than others, are really worried about how to protect their wealth from government corruption and destruction.
- Some merchants like this to protect from chargebacks and can cut expensive middle men fees out such as Visa and Mastercard.
The Cryptocurrency Investor
A new phase of people are now running to cryptocurrencies as an investment as it has gone up 60% in the last month and 2500% in the last year (written 11/28/2017)!! But should we still invest at what appears to be a bubble?
Pitfalls of Cryptocurrencies
- Very few understand it. You don’t need to know it all to use it, but it’s a very complicated system and to store your money in something you don’t understand may not be wise
- It’s unregulated. The “big” exchanges that trade these cryptocurrencies and store them are all still relatively new and i’ve used some of their software and it’s unrefined to un-useable at times. In February 2014, Mt. Gox, at the time the world’s largest bitcoin exchange, “lost” everyone’s money and filed bankruptcy. There wasn’t a flaw in Bitcoin, but it’s the dangers of mismanagement by new unreliable companies.
- Storing digital currency leaves you at risk to theft. If you store cash, you are at risk for theft from a daring person probably within your vicinity. Storing cryptos improperly leave you vulnerable to every thief on the internet from all over the world who is protected by probably being outside of the country.
- Some scaling issues with early cryptos have caused splits in their communities which have lead to real physical splits in the currency. Bitcoin has even had one of these and now there is a Bitcoin Cash (BCH) crypto split off from the original Bitcoin (BTC) further complicating it and creating multiple currencies.
Invest in Bitcoin at 1 BTC = $10,000 USD?
The surge in Bitcoin’s price has bolstered the price in a lot of other cryptocurrencies as well. People are throwing their money in there as an investment vehicle jumping on the band wagon. That most likely means a price correction eventually, but how high can it go? I believe it’s still going up as I believe in the market for such product exists.
Let’s put some stuff in perspective:
- Total US Stock Market Cap: $28 Trillion (2/2016)
- Total World Stock Market Cap: $69 Trillion (2/2016)
- BTC Market Cap: $166.5 Billion ($0.1665 Trillion on 11/2017)
- All Crypto Market Cap: ~ $290 Billion ($0.290 Trillion on 11/2017)
So the amount invested in cryptocurrencies is 0.4% (.29 / 69) of what’s invested in the world stock market. This is a very small amount and I think there is still room for growth. As a stock indexer investor i’m inclined to buy a little bit of all of them. Due to the risks though I won’t do anything crazy to make life altering money.
How Much Am I Investing?
I actually bought 1 BTC back in 2013 for about $100 and it’s on the crux of being worth $10,000. I’m very happy bout that. I am interested in getting a few other cryptos and maybe investing 5% of my portfolio in cryptos. Here’s some safeguards I’m going to do:
- For long term storage, I would recommend storing your coins in a paper wallet. That means, you generate a wallet from the official site or recommended official site and you print it and delete it from your computer. The point is you don’t want any digital copy that can be stolen from you! You get some cryptos from someone or buy them from a trusted exchange. You then send your coins to your wallet that you created and that’s it!
- Not betting the bank on this one. What goes up fast can go down fast. Lots of volatility means a risk adverse investor like myself will take it easy.
- Diversify in the coins. Just like stock picking, i’m not an expert and theses currencies are too new. I want to invest in the industry and not a specific coin. That approach should lower the volatility. Don’t be foolish and straight gamble. I’m telling this to myself because sometimes you wanna take a shot at that life altering money. But no! Be smart and happy with what you already have.
Somebody should start a index fund of cryptocurrencies. Oh wait they just did back in October 2017 called Hold 10. I’m going to look into this fund and write up about it next time. Got to check if it’s all legit.