So, I wrote this awhile back, please ignore the information that is out of date. (Example Coinbase has since announced they do not plan to add more assets in the immediate future.)
I am an economic fanatic but am a newcomer in this world of investing.
I look forward to hearing feedback from the community as to what my take is on the market.
My Take on the Crypto Market
ERC20: 0xcdA80cdd4640d3b807Cdd8bd548ef2cb3F99F7cA
To begin, The Trading and use of "cryptocurrencies" within the blockchain universe is a new frontier for today’s investor, even for the well-seasoned venture capitalist. When investing in traditional stocks, you are purchasing micro-ownership of the entity you have chosen to invest in. The upside if this, if it's a prosperous company, you prosper as a partial owner. The downside, the success of the aforesaid company is largely dependent on a strong economy. When the economy is struggling, so does the stock market. Cryptocurrencies are not correlated to the economy in the same way as traditional stocks.
Cryptocurrencies are an entirely new playing field, the term "cryptocurrencies" is, in my opinion, very misleading. "Crypto" leads one to believe that what you are purchasing is safe because it is encrypted, unfortunately this is not always true. "Currency" makes us think that this "coin" is meant to serve as a replacement to our traditional Fiat currency. Although this does ring true for countless cryptocurrencies, for many others it does not. In general, when you are investing in a cryptocurrency you are essentially investing in a technology that relies on both software and hardware components. It is for this reason that I while refer to all "cryptocurrencies and/or coins" as shares. This is merely the terminology I will use to make the concept of investing in this market more tangible for newcomers.
When buying coins, you are supporting the technology that they offer. The difficulty in this tech universe is balancing the different variables: Security—Speed—Privacy—Fungibility. Because it is seemingly impossible to accommodate all this attribute simultaneously it is clear now that there will never be one software “crypto/coin” that can do everything. There are coins that are designed to be “stores of value,” then there are those designed to power software platforms upon which software programs can be built and where “smart-contracts” are executed, there is software that is designed to be free-marketplace, there are coins that are developed to serve as stores of information verifying your confidential medical information…etc the list goes on, all of these software programs are really designed to take the hegemony from corporations and middlemen and allows individuals to send information without the need of a third-party.
There are now thousands of different cryptocurrencies in existence, just as many have failed. Being such a new frontier, it is anyone’s guess as to which will prevail in the long-run, bitcoin was the first, the prototype, I believe it is already archaic in comparison to countless others. As the saying goes, don’t keep all your eggs in one basket, just like on the stock market I recommend diversifying your cryptocurrency portfolio. The following is a list of Crypto’s that I keep in my portfolio, I will provide a link to their website and explain why I believe them to be promising investments, as well as what my concerns are. Before I get started, it must be understood that not all the coins are offered on every exchange. In the United States the largest exchange is Coinbase. Coinbase is the only exchange I have trusted to purchase cryptocurrancies with USD via my bank account. Think of these exchanges as “stock exchanges” the Nasdaq doesn’t offer all of the stocks that the Dow Jones and vice versa… For the time being Coinbase only offers three cryptocurrancies to its client base. This is because Coinbase aims to be the most prestigious cryptocurrency exchange in the country. They offer fewer coins than nearly every other exchange because they conduct strict research and only want to make coins available to clients that they believe will be successful.
Bitcoin (BTC): https://www.bitcoin.com/
Bitcoin faces a difficult paradox. It was the trailblazer, the very first coin, and thus has gained the most global recognition. Bitcoin was designed to be used as a peer-to-peer payment alternative (think venmo without involving banks) that prided itself on decentralization. But unlike fiat currency, Bitcoin is a deflationary currency. There will never be more than 21 Million bitcoin in circulation and the last bitcoin won’t be mined until approximately 2140. Why would you ever want to pay for something with something that is going to keep gaining in value? Bitcoin for this reason has lost the scope to be used as a currency, it has great encryption but poor privacy and very slow transaction times. However, Bitcoin still is the blue-chip that no-matter what happens seems to keep gaining in value. This is not a good reason to buy, as FOMO or fear of missing out is a typical bait for any Ponzi-scheme.
Why do I hold bitcoin?
Because it is the most widely accepted, and it’s code is open-sourced, bitcoin has attracted some mammoth Tech companies and developers from all around the world.
As a store of value, it is terrific. More and more people are choosing to keep their savings in bitcoin rather than in a savings account which yields very little annual interest. Bitcoin is finally being added to institutional exchanges such as CME and CBO which are offering bitcoin futures. This frightens me, but as a long-term investment it will be beneficial as it will open the gates to institutional investors.
Bitcoin as a “Gate-Keeper”—It is impossible to invest in most all of these other cryptocurrencies with fiat currency. On many exchanges Bitcoin is the MAIN trading pair meaning that there more options available as to what you can invest in. Think, if it was impossible to buy shares of Apple or google in a currency other than US Dollars, the value of our dollar would sky-rocket, people all over the world who wanted to invest in apple would be rushing to their nearest currency exchange in order to exchange their local currency for us dollars. This is perhaps the biggest driving force behind the unbelievable gains Bitcoin has shown us this year.
My Fears:
Bitcoin does not serve any purpose other than being a store of value.
With Bitcoin futures now trading, institutional investors are going to be betting on price declines as well, increasing volatility.
Becoming centralized—Because mining bitcoin requires incredible amounts of computing power (and electricity costs) and the difficulty to mine becomes exponentially more difficult, the little man no longer is able to profit through mining bitcoin. So what does the little man do? He can mine other coins that are more lucrative and cost-effective. Then, who is mining bitcoin? Farms, in china and who knows where, throughout the world (especially where electricity is cheap) there are warehouses filled with ASIC (Computer that excels at mining Bitcoin’s type of algorithm. This means that whoever has the most computing power is receiving the most bitcoin and begin to manipulate the market leading to centrality.
Because bitcoin is not governed by any particular organization, in my opinion it lacks scope. Because the creator of Bitcoin chooses to remain anonymous still today it is difficult to see what the future has in-store for bitcoin. Because of this ambiguous vision, bitcoin’s software programming struggles to agree on necessary updates due to in-fighting between the developers and the miners. When disputes are not solved, the cryptocurrency will often “fork”. A fork is when the software developers decide to part ways, the opposite of a merger, but as a shareholder in the crypto you are rewarded in the offshoot coin similar in a way to a stock-split. Bitcoin Cash is perhaps the most significant fork of bitcoin to date.
How forks work and how they can result in increased volatility.
If you had owned 10 bitcoin prior to the bitcoin cash fork, doing nothing but holding your bitcoin in a bitcoin wallet you would have been rewarded with 10 Bitcoin Cash at no charge to you.
How does this increase volatility? For the purpose of this example, lets say bitcoin cost 10k at the time of the fork. You already own 10 bitcoin worth a total of 100k. At 10,000 a share you find this to be overpriced but with the fork coming up you decide to spend another 50k to purchase five more bitcoin. You now hold 15 bitcoin in your wallet with a value of 150k. The fork happens, you receive your 15 Bitcoin Cash, and remember because you didn’t want to spend 50k dollars on five additional bitcoin you immediately sell them. Now, your portfolio contains 10 Bitcoin and 15 Bitcoin Cash. Had you not bought (and subsequently sold) the additional five Bitcoin you would only have 10 of each in your portfolio.
You can now see how when all of the “whales” (people who hold thousands of bitcoins) do this it can really mess with the market.
Bitcoin Cash (BCH): https://www.bitcoincash.org/
Current Price/ Share
Market Cap
Bitcoin Cash is peer-to-peer electronic cash for the Internet. It is fully decentralized, with no central bank and requires no trusted third parties to operate. Is Bitcoin Cash different from 'Bitcoin'? Yes. Bitcoin Cash it is the continuation of the Bitcoin project as peer-to-peer digital cash. It is a fork of the Bitcoin blockchain ledger, with upgraded consensus rules that allow it to grow and scale. Think of Bitcoin as Gold, and Bitcoin cash as dollars. Much quicker. Better for use in commercial context.
I myself don’t hold a large position of bitcoin cash because other than it being added to coin base this January and perhaps being used as a trading-pair on a few exchanges I see many more lucrative alternatives. The lack of scope and vision of bitcoin also rings true with bitcoin cash.
Ethereum (ETH): https://www.ethereum.org/
Current Price/ Share: $750.00
Market Cap: $69.28 Billion
%
Ethereum is a blockchain based computing platform, many computer scientists refer to it as the next step in evolution of the internet. Unlike bitcoin, Ethereum’s creator is well-known and regarded as a computer genius. Vitalik Buterin and his team of developers started Ethereum in Zug Switzerland via an ICO. It is hailed as so far the most successful bitcoin ICO to-date.
ICO—Initial Coin Offering: This is the new manner of funding that many firms and start-ups are using. In 2014, bitcoin cost around $400. For every bitcoin you sent the Ethereum development team you were promised 2000 Ethereum in exchange. You are in essence investing in this company with the hope that they will become successful and the demand for their shares will raise in value. As you can imagine, with no officials or legal process involved, these Initial Coin Offerings or ICO’s is incredibly risky as they are so difficult to regulate the validity of the companies conducting ICO’s.
ICO’s—have also been the catalyst that has caused Ethereum’s value to skyrocket. Rather than requesting bitcoin as an investment, hundreds of blockchain start-ups began requesting Ether instead of bitcoin resulting in increased demand for ether. Many of these other coins in my portfolio have been developed or built upon Ethereum’s software system, perhaps think of Ethereum as a planet that has its own hemisphere.
GATEKEEPER—Just like Bitcoin is required to purchase shares in many of these companies, Ethereum is the next most prevalent trading pair.
It is just now that other cryptocurrencies such as Bitcoin Cash and DASH are starting to be implemented as trading pairs on select exchanges.
COINBASE FACTOR—Ethereum has existed since 2014. Until being added to coinbase in January 2017 Ethereum had struggled to surpass the $10/ share resistance barrier.
Litecoin (LTC): https://litecoin.org/
Current Price/ Share
Market Cap: $17.52 Billion
Litecoin is a fork of bitcoin that occurred in 2014. Rather than only 21million there will be 84 million litecoin that will ever enter circulation. Lite coin’s competitive advantage to bitcoin is speed. At 2.5 minute transaction time Litecoin is much quicker. Another positive is that because it shares the code of Bitcoin, any advancement bitcoin makes Litecoin experiences as well.
Most importantly, Litecoin was developed by Charlie Lee, who is a well-renowned developer and earlier this year left the position he held at the coinbase exchange to focus his energy on the development of litecoin.
Recently Charlie Lee and Litecoin successfully completed an “atomic swap” meaning Litecoin was exchanged for a different coin (Vertcoin also a good one) without the involvement of an exchange, furthering the goal towards pure pier-to-pier trade and interaction.
Until more coins are added to coinbase this coming January what I like most about Litecoin is its speed. Both bitcoin and Ethereum are incredibly backlogged verifying transactions. Think if them as like “dial-up modem”
Ripple (XRP): https://ripple.com/xrp/
Current Price/ Share: $0.72
Market Cap: $27.41 Billion (largely attributed to its mass circulation.)
By far one of my favorite investments I’ve made. Rather than attempting to eliminate the power of banks, ripple is a software developed to be used in the banking industry. Ripple already has contract agreements with hundreds of banks throughout the globe. I believe they have up to seven different offices located in various continents.
The (Bill) Gates Foundation stated earlier this year that they will use Ripple on a global scale.
Trading at less than $1.00 per share XRP is still extremely undervalued. From its January low of $.06 ripple That being said it did not brea
Ripple just acquired some lead guy from Facebook.
ICO ALERT!!!--- New startups are beginning to request Ripple as an investment towards their initial coin offerings, this will bolster demand.
COINBASE FACTOR—There is huge speculative hype coming from many different reports (rumor mills) that XRP is going to be added to coinbase in 2018.
IOTA (Internet of Things): https://iota.org/
Current Price/ Share
Market Cap
I love this company, it’s a non-profit organization based in Germany. Iota has a unique and innovative type of software that is not blockchain. It is their own “Tangle Method” to provide a global marketplace. I don’t understand it quite well enough yet but it has sparked a lot of attention as Microsoft and Deutsche Bank have both said they are excited by this technology.
COINBASE FACTOR—There is huge speculative hype coming from many different reports (rumor mills) that Iota is going to be added to coinbase in 2018.
EOS (Entrepreneurial Operating System): https://eos.io/
Current Price/ Share
Market Cap
Another of my favorites, EOS is similar concept to Ethereum, however rather than putting an emphasis on smart contracts (which it can also do) Eos prioritizes businesses.
EOS has a brilliant development team, a new exciting software update coming very soon.
COINBASE FACTOR—There is huge speculative hype coming from many different reports (rumor mills) that EOS is going to be added to coinbase in 2018.