Horse racing. Animals, too young for the drugs they are fed. Whipped by their jockeys to give 112% for the pleasure of a wealthy owner. Easily replaceable and regularly kicking the bucket on the racetrack.
Just like i imagine the cryptocurrency fonds manager of the future.
But until those emerge we have to do the dirty work ourselves.
Let's push the metaphor and compare the cryptomarket to a race with five horses. To calculate if it has a positive expectation to bet on a horse we have to combine two factors.
- The objective percentage for the horse to win the race
- The odds the bookie is laying us
Let's put together a sheet for this race. Luckily for us there is more than one way the bookies like describing the odds, so we have the chance to learn how to convert decimal odds to percentage to freedom units. 1 / decimal odds = percentage. And for freedom, easy:
If negative, the US odds express the dollar amount that would need to be wagered in order to win $100.
If positive, the US odds express the dollar amount that would be won from a $100 wager.
To not overstrain the readers i am going to skip fractional odds.
| Horse | Percentage | Dec. Odds | USA |
|---|---|---|---|
| Bitcoin in Autumn | 50% | 2.00 | +100 |
| Ethereum meets KitKat | 25% | 4.00 | +300 |
| Litecoin d'Oro | 15% | 6.67 | +567 |
| Steemy Pharoah | 12% | 8.33 | +733 |
| Monero Bolt | 10% | 10 | +900 |
Looks good you say but what is that table telling me?
First of all you can deduct, that if you are being offered those decimal or US odds, you need your horse to have at least the noted percentage to make a profitable bet.
Secondly if you like numbers and did not just skim over them, you probably noted that the percentages add up to more than a 100%. Why?
How do you think the bookie is going to pay for his new Mustang GT?
Most importantly you are going to notice, that investing in cryptocurrency is not like betting on a horse race.
In crypto you are allowed to invest in a market where a lot of horses have the chance to win and the odds are looking good for a bunch of them. You don't have to pay for the bookies Mustang, as the nature of crypto gives you small transaction fees. It is a technology in its infancy but not even close to the bubble point a lot of people are talking about - because of it's real value for global society.
So what factors do we have to combine to find the long term good ones here:
- Is the Coin based on a real Blockchain technology or is it just a database application
- Does the Coin have a valuable usecase
- Do the developers have a clue and is enough dough for them in the locker
- Is the market capitalisation of the coin lower than what it objectively should be
Research that and if you are happy with the results buy the coin. Put it in a safe place like a Trezor or another offline wallet and forget about it. Yes really. Be realistic. If you are reading this introduction to investing you probably are not one of the wizards with enough knowledge to be a favourite daytrading. How many whitepapers have you read and completely understood?
And with us humans, losses hurt more than winnings bring joy. So in average, every swing you follow is just going to hurt.
You have to keep in mind, that if the coin jumps up 30% or loses 20% it is not the coin gaining or losing real value. The value of the coin is rooted in it's technology. In the developer's competency and the trust of the market in it's usefulness.
Cryptocurrencies are not made for their swings to be watched for pleasure.
As we said. Investing in crypto is nothing like a horse race.