Whether one should invest in cryptocurrencies or not has been a hot topic as of late. Being such a young asset, the market tends to be extremely volatile, filled with stories of extreme success or massive failure. The question is really about making an informed decision consisting of probability, timing, and if the investment profile fits the investor.
For those who have been living under a rock for the last year, just Google “bitcoin success story” and you can read about the kid who made a deal with his parents, allowing him to skip college if he was a millionaire by his 18th birthday – and him succeeding due to Bitcoin. Or the homeless guy who was living in his car only to have a friend tell him about Bitcoin, which later turned him into a millionaire. The list goes on and on.
Unfortunately, for every success story, there’s an equal number of personal Bitcoin disasters. Like the guy who accidentally threw away a hard drive with 7,500 bitcoins, worth over $70 million in today’s dollars. Or the English celebrity Lily Allen, who passed on a payment of 100,000 bitcoins in its early existence if she performed a streaming a gig on the popular online game Second Life.
Depending on the media and what you’ve heard, all that noise may cloud your judgment on how to pursue this new and rapidly growing asset class.
Invest In Blockchain Now Or Has The Ship Already Sailed?
Most people I talk to today think the opportunity surrounding cryptocurrencies has already passed, and although there’s some truth to that, but most people don’t realize that there’s more substantial opportunity in front of us. We’re still in the first inning of this ever-changing revolution of money.
I’ve been working in finance for nearly 20 years, and over that time I have made countless mistakes. Those who know me have likely heard about the time I passed on buying Amazon stock back in 1999 after it was already up 6000%. I remember thinking their business model would only grow and even though I would have been buying close to the top, I remember thinking Amazon was not going to go away.
Unfortunately, I decided to not listen to my gut but instead to all the people telling me I had already missed the boat. As the story goes, that turned out to be the second worst investment decision of my life!
Most people thought the internet had already done its thing by 2000. The dot-com boom was wrapping up and those who had invested in the 90s made a fortune, while those who didn’t just stood there kicking themselves, continuing to do nothing, because they thought the opportunity had passed.
Little did they know the best was yet to come.
I cannot help but see the same parallels in the cryptocurrency space. Why does the internet continue to explode even as I write this? It comes down to innovation and adoption — both of which are still expanding at a rapid pace in the cryptocurrency world.
Out of the 7.6 billion people on this planet, there are only about 21 million bitcoin wallets that exist. That means only about 0.3% of the world’s population owns Bitcoin right now. I don’t know of anything that’s setting up for future mass adoption more than the blockchain industry.
When it comes to innovation, advances are being made in blockchain that will soon revolutionize the world. I follow this stuff daily and could fill up ten pages of examples easy.
Think about the world as it was a decade ago and how quickly things can change. The first iPhone had just hit the market, Facebook, YouTube, and Twitter, were just starting to pick up steam.
Today these things are dominating entities that continue to drive our lives and the economy. Uber and Lyft had not even been invented yet!
The fact is, in the tech space, things change with the blink of an eye. If you’re not ready for it, those opportunities will pass you by. Also, keep in mind, now that blockchain is on the map, the industry is attracting the most capable tech talent worldwide, which is another factor to consider.
Currently, the cryptocurrency space has a combined market capitalization of just under $400 billion. That might sound like a lot to some; however, to put that in perspective, that’s just about half of what Apple Inc. is worth. If just one company is worth twice that of the whole cryptocurrency industry, there’s certainly room to grow.
Not All Cryptocurrencies Are Made The Same
Unfortunately, just like the dot-com boom of the 90s, there are going to be plenty of cryptocurrencies that crash and burn, and with it, investor dollars. Remember Pets.com, Grocities.com, Webvan.com, AltaVista.com; the list goes on and on.
Not all cryptocurrencies are made the same; getting into the right ones could be like buying Amazon or Apple, getting into the wrong ones could be like buying Yahoo or Pets.com. For this reason, if you’re not financially savvy, it’s essential to educate yourself or find a coach that knows how to trade cryptocurrency successfully.
ETFs – Not That Far Away
Let’s not forget about all the institutional money that just waiting to pour into this asset class. Cryptocurrencies are in the infancy stage in terms of Wall Street recognition, and until the SEC approves crypto-assets like ETFs, all that money is going to be kept out.
Currently investors have limited options; futures and index funds are nothing compared to what a real ETF would do. Once ETFs join the scene, there really will be no turning back. Remember last December when the CME and the CBOE listed Bitcoin futures, the market skyrocketed. That’s nothing compared to what an ETF could do.
Most people find the macro side of the space tedious, so I will spare you the boring details. Just know that the CBOE president Chris Concannon is pushing for the SEC to approve ETFs by the end of the year, explicitly stating that the markets are not only ready, but ETFs would be a necessary step to solve liquidity issues that the space currently faces.
That fact that a major financial market in the CBOE is pushing for a Bitcoin ETF is really something. This substantially improves the chances of a real ETF this year.
When it happens, look out, it will be a game changer for the market. Those who are in then will reap the benefits while that ship sets sails on the rest.
There‘s a significant upside to investing in cryptocurrencies now and being that the blockchain industry is still relativity young, most optimistic investors are predicting that prices will rise far above even the 2017 highs, making this investment an incredible bet.
However, for those who have already taken the plunge, most have learned from firsthand experience that investing in blockchain can be a “double-edged sword,” filled with huge swings and wild volatility. The price can swing up without warning, as well as plummet at the first sign of trouble.
Even though the underlying technology around the blockchain is groundbreaking, some feel Bitcoin and other crypto assets are trading in a bubble. For those with a weak stomach or not willing to take a loss in the event of a price drop, crypto assets are probably not the right asset class for an investment.
For investors who believe in the space, are willing to take a long-term approach, who can afford a loss, are willing to stomach the lows and trade intelligently, investing a small amount into blockchain may be a smart decision.