Many people who are new to the wonderful world of cryptocurrency often start off feeling like they've already been left in the dust.
The biggest player, Bitcoin, is now valued at around $14,000, and that is after a correction where the price pulled back from $20,000. For us non-wealthy
investors, this means that we cannot, reasonably, afford to buy a single Bitcoin, which is pretty disheartening after finally getting your feet
wet in the crypto world.
Because of this many new investors forego the well-known already established cryptocurrencies and try their hand at what they believe to be a
good deal. And what does good deal mean to these investors? A low price, of course! But there are a few reasons why a low price is not always
a good deal, and in this article I will show you a simple way to determine, relatively speaking, how good of a deal something is. Although
I have been interested in cryptocurrencies for a few years I only began investing 6 months ago, and what follows is a tip I would have known when
getting started.
</p>
<p><h1>Supply Matters</h1></p>
<p>
There are many reasons to invest in a cryptocurrency. You like the technology and want to invest, you believe in the dream
the creators put forth on their very new and shiny website, you like the mind behind the currency, etc. What I am going to dive into here is for those
who while also possible subscribing to one of the previous reasons to invest are also concerned with making a profit or in my case beating out the interest
rate I would be getting if I let my money sit in a bank. This being the case, let me say <strong>supply matters</strong>!
</p>
<p>
I am going to take an approach here that will give us some common ground to compare all cryptos with one another. What we care about here
is total coin supply and price. This is a simplified view I know, and not truly indicative of what's going on in the real world, but it's
simplicity allows us to easily see how far a crypto can go from a purely mathematical standpoint so that we can really see how good of a deal we
are getting.
</p>
<p>
One of the first alt coins I purchased was XRP, I had bought some Bitcoin previously, but of course I didn't even have close to one. After
reading through ripple.com to get a feel for the project, and of course seeing the price at $.0.23. I thought this was an amazing deal, and a
great way to get in on the ground floor of a cryptocurrency that was fairly new. But I was wrong, not wrong in believing that XRP was a good
investment, I still believe it is. But wrong in the fact that this investment was going to see as big a jump in value as Bitcoin has. Let's examine why.
</p>
<p>
Bitcoin has a total supply of 21 million coins, that’s all that there will ever be, meanwhile XRP has a total of 100 billion coins. So, let's do
some quick math. Let's wipe the slate clean and say that all of the coins available for both of these currencies are available and in the hands of
investors. Let’s also assume that the price of both Bitcoin and XRP are $1, this would mean that the total market capitalization for the two would be:
</p>
<pre>
<code>
Bitcoin: $1 x 21,000,000 = $21,000,000
XRP: $1 x 100,000,000,000
</code>
</pre>
<p>
Failry obvious, right? But what does this mean for my initial investment, how good of a deal was it? Let's first figure out the percentage
difference between the supply of Bitcoin and XRP:
</p>
<pre>
<code>
100,000,000,000/21,000,000 = 4762 times as many XRP as there are Bitcoin
</code>
</pre>
<p>
That is a large difference, and what it means is that buying into XRP at $0.23 is not like buying into Bitcoin at $0.23, but rather like buying
into Bitcoin at $1095! If you are buying XRP now at $1.26 it is like buying Bitcoin at $6000! So, while there is still money to be made the picture
is a lot different than what we initially thought. There is only so much money in the world, and only so much of it can be in the cryptocurrency
space. Let's take a look at market capitalization again:
</p>
<pre>
<code>
Bitcoin: $1 x 21,000,000 = $21,000,000
XRP: $1 x 100,000,000,000 = $100,000,000,000
Bitcoin: $10 x 21,000,000 = $210,000,000
XRP: $10 x 100,000,000,000 = 1,000,000,000,000
Bitcoin: $100 x 21,000,000 = $2,100,000,000
XRP: $100 x 100,000,000,000 = 10,000,000,000,000
Bitcoin: $1000 x 21,000,000 = $21,000,000,000
XRP: $1000 x 100,000,000,000 = 100,000,000,000,000
Bitcoin: $10,000 x 21,000,000 = $210,100,000,000
XRP: $10,000 x 100,000,000,000 = 1,000,000,000,000,000
</code>
</pre>
<p>
So, by the time XRP hits $10,000, a number Bitcoin has already passed, it would have a market cap, assuming 100% of the coins
were in circulation, of $1 Quadrillion... According to the Bank for International Settlements
<a href="https://www.marketplace.org/2017/10/30/world/how-much-money-there-world">
there is currently only about $5 trillion available in entire world in all currencies combined
</a>.
</p>
<p>
Therefore, it isn't as insane as it sounds when you hear people saying that they think the value of Bitcoin can get to $100,000 because
even there the market capitalization will be at most 2.1 trillion at that time, which while enormous may not be out of the question,
and is the market capitalization of XRP at $20.
</p>
<p><h1>Exit Strategy</h1></p>
<p>
This realization changed my exit strategy for XRP which, originally, was to take profits somewhere between $5000 and $10,000.
You will need to adjust your exit strategy as well, and there is no specific number that will apply to every crypto
you are invested in, but you will need to adjust your expectations based upon the fundamentals of the crypto itself and how far you believe it can go based on
max market capitalization.
</p>
<p><h1>So what's your exit startegy?</h1></p>
<p>
Be aware that my goal is not to become a multimillionaire through cryptocurrencies, if it happens then great, but I'm happy simply beating
the bank and the stock market and so my exit strategy reflects that. For all the cryptos I hold I basically have 3 points at which I will sell
first is 1/5-1/4 of the way to the max market cap, second is halfway to max market cap and the third will be a trailing stop that will sell off
90% of the rest after a 20% drop from whatever the current highpoint in the price is, the remaining 10% of the coins I'll hold just in case we do
land on the moon. So for XRP my sell points will be:
<pre>
<code>
1. $2 - $2.50
2. $5
3. Whatever number higher than $5 the xrp falls back to after a 20% drop in value.
</code>
</pre>
</p>
<p>
Of course, if my sole goal is to maximize profits then I would wait until after $5 to sell anything, but I'm personally a little too risk averse
for that. You, however, can adjust these numbers to however risk averse you are. For the adventurous and those who really believe in ripple
you can hold out for one big payout at $10 or even $100, for people more cautious than me you can adjust these so that you have 4 or 5
payout points and a lower final cash out, say, for instance, $3 instead of $5, but those are decisions you will have to make for yourself.
</p>
<p><h2>To exit into fiat or Other cryptocurrencies, that is the question</h2></p>
<p>
As I stated before, my goal is to have my money in a place where it can work for me rather than sit still in a bank generating only
.01% interest, so after exiting I move the proceeds into another crypto that I believe in and once I reach my goals there I rinse and repeat.
In this way my profits, hopefully, are never too stagnant. If you are a hodler and are waiting for that moon landing then, of course,
you would want to wait as long as possible and cash out into fiat and enjoy the rest of your life on the beach. Once again this is a personal
decision and not black or white, you have the option of doing half and half, or any ratio you would like. Even I should probably cash some out
every once in a while, even though I haven't yet, because, let’s face it, its good to enjoy the fruits of your investments sometimes!
</p>
<p>
Thanks again for reading! Please upvote if you liked what you read, and if you didn't let me know why in the comments down below! Have a good weekend
and a happy (and profitable!) new year!
</p>