This article is an older piece, I have finally gotten a steemit account approved and so am now posting it here. Stay tuned for big things coming up!
Fiat FUD: A New Flight to Safety
Today we will be discussing whether or not it is worth it to take your hard earned fiat money and risk it on volatile assets like cryptocurrencies.
With Bitcoin clinging to a 45% market share1 statistic amidst miner/user arguments one must evaluate whether right now is the correct time to enter the crypto market. In the month of May cryptocurrencies rode a rollercoaster of price action, as Bitcoin and Ethereum saw new ATH’s (all time highs) many other altcoins (alternative cryptocurrencies) were pulled along for the ride. With the inflow and outflow of money into the crypto space that has taken place in the past few weeks, reaching just short of $91 Billion, then dropping to support just above $70 Billion, and now returning to upper 80’s the ‘market capitalization’ of crypto-tech is a good indicator to watch in order to understand just how much speculation is happening within the markets. Speculation, meaning trading (which we here will differentiate from investing), involves using technical analysis in order to try and determine buy/sell points in the market based on candlestick reading and moving average analysis. Essentially this usually boils down to recognizing or ‘feeling’ patterns in the market and using them for profit. The problem is that when markets rely too much on a feeling they tend to become self-fulfilling prophecies. Money chasing profits can bring in money (HYPE) as quickly as it can expel it (FUD). This inflates the market beyond merit-based-value into a realm where many market actors are trading with emotion.
Contrast the trader with the investor, the investor doesn’t allow emotion to become intertwined with his money. The investor puts his money into coins that he fundamentally understands and within which he sees growth potential, thus the bedrock of a good investor is fundamental analysis. This is not to say that as an investor you cannot leverage the use of technical analysis in order to secure excess return, but it is much easier said than done and trying to time the market usually leaves most people in the dust waiting for the ‘perfect’ moment. The reality of the situation is that the best time to invest in anything is right now. The past nor the future exist, you can neither go back to the right entrance window nor skip ahead to the right one. All you can do is make a decision on right now, is this investment worth the risk to me RIGHT NOW.
Asking the right questions:
Before investing in any cryptocurrency ask a series of questions, this is the Due Diligence phase, in no particular order:
- What does it do?
- Is this technology viable?
- Is this technology useful?
- What markets can it disrupt?
- Does it already have users?
- Who is on the development team and board for the tech?
- How are currency economics outlined?
This is in no way a comprehensive list nor does it include many of the smaller questions which will arise as you dig deeper into the minutiae of a technology. As an investor you must decide which fundamentals are important to you, or you must find an investor with whom your economic incentives are aligned. If you would like to work through this process on a well documented project I would suggest browsing the documents found at ethdocs.org and perhaps starting with the Ethereum Whitepaper.
Our Fair Markets
When evaluating your reasons for investing in cryptocurrencies look at both short term and long term outcomes. Part of this market outlook requires consistent and continuous due diligence of current market systems and the debt that collateralized them. The S&P 500 is currently sitting within mere hundredths of a percent of its all time high, all the while US debt continues to grow. In the scope of our markets over the last 50 years this is not at all unexpected, in fact it is exactly what is expected of an inflationary currency system, consistent future growth is expected and is used to collateralize current growth. But as we borrow further and further from the future and spend more on smaller and smaller returns (see current average P/E ratio of the S&P500) we continually seek new forms of growth.
In a Finite World Infinite Growth Models are Broken
Enter Cryptocurrencies, economic systems that are typically:
- De-centralized
- Immutable
- Secure
While none are at fault for wanting to ride the profit waves of these new markets the true winners will be the people who are conscientious and forward looking. This new frontier of technology has the capability to change our entire world, the demand for its value is already here, but only early adopters and innovators will make it viable for the masses that it will inevitably affect.
From Here On
In the future blockchain technology will be used for applications we haven’t even yet imagined, it may even be designed by AI’s that don’t imagine (or do for that matter). This all goes back to the title of our article Are you a Speculator or an Investor. A speculator will get caught up in price movements without fully first stopping to think about what kind of future blockchain technology will spell out, what kind of future they want it to further, because the want is the important part. In a space as new as this the real value creation comes from the people who have a vision and a belief in that vision. Whether you invest time, money, knowledge, or any other of your assets or human capital you make investment decisions with conviction and decisiveness. Setting routine for your investment analysis is the easiest way to do so and is the basis for any good strategy.
-Mason
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