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.