The purpose of this series is to introduce the vast world of cryptocurrency and like digital assets to the newcomer or novice. Each section presents digestible content that develops the reader’s understanding of the crypto market and underlying technology.
Crypto as an Investment
For those who are just entering the series, check out part I >>>[here]. Readers will notice that towards the end of the first article, we give some real-life use cases for non-Bitcoin crypto assets (Polygon, Arweave etc). It is these assets that we find our greatest interest investment wise. One common mistake potential investors make is assuming that because the digital assets aren’t tangible, that they are fake or “magic internet money”. Take a moment to take the currency out of crypto, in fact most crypto networks are not aiming to be a currency at all. Even Bitcoin, which is often touted as a currency, is more a store of value, like digital gold, something you hold long-term, that should appreciate greatly in value over time.
I like to view each crypto asset category and compare it to something relatable for the potential investment. Bitcoin can be compared to the new age of gold and a store of value asset. Ethereum can be compared to the gasoline of the internet or viewed as a tech investment. Polygon can be viewed as a tech investment in a technology that aims to further increase the speed and reduce the cost of Ethereum. Arweave would be investing in the concept of a permanent storage system that stores history itself including news, blockchain transactions, and more. Suddenly the use cases take away that “magic internet money” fallacy. Afterall the stocks we carry are digital, the money in our bank is digital, and our retirement accounts are as well.
The digital era is upon us, and whether we like it or not it is only increasing every year. Crypto fits this bill, and the pandemic launched us forward into this new age at a rapid pace. At Coinbusters we like to discuss assets that have utility, have a potential for or existing demand, and are forward facing. We also like to focus our buys on strong fundamental assets that have a currently reduced price. Today, this is all of crypto, since Bitcoin’s not so distant all-time high we find the asset at a discount. Most of the market aside from a few select altcoins (non BTC/ETH tokens) is far into the red, 50-90% from all-time highs. This is attractive because the risk to reward is there, an asset 90% reduced has a lot more upside potential than downside for the most part.
Mixing the old with the New
Our strategy is mostly simple for our everyday readers. We take old age investor strategies such as dollar-cost-averaging and value investing, then we bring them to the new age of digital assets. Nothing fancy is required for more than half of what we like to do. Simply take your basket of assets and set aside a certain amount you are willing to part with weekly. Investors who are on the fence might start with 5-10% of their portfolio in crypto. Even small contributions can make a massive difference. If you had invested the 1400$ stimulus check into Ethereum during early 2020 with an additional 75$ per week you would have almost 100,000$ in one year, compounding is a powerful and always useful tool. If you had bought in 2019 you would likely be closing in on a million-dollar investment.
Success in investing is not always glorious or complicated. Many of the best investors are simply thoughtful and patient. Patience is the biggest factor since the best investors by statistics are those who have died, this is because humans mostly trade with emotion, we always sell WAY too early [1]. Another important concept goes against this trend, smaller market cap crypto assets are very volatile, so taking some early profit is the strategy there. Generally, the higher the market cap the crypto asset, the safer it is to hold long-term and look away. Therefore, we usually recommend mostly Bitcoin and Ethereum to the new crypto investor, they are solid long-term plays. Do remember none of our writings including financial advice though.
In crypto it is not unheard of to see 100-200-1000x gains in short periods. Generally, if an asset is taking up a large portion of your portfolio, it might be smart to shave off some profit to reduce risk, we mostly apply this logic to altcoins. However, you do not need those rare, astronomical gains to make it, in fact Ethereum outperforms the entire stock market year after year on the long-term timeframe. Nothing wrong with outperforming the stock market year after year, getting rich quick is mostly luck and excessively risky. We try to locate ourselves somewhere in the middle between patient and thoughtful investors, and risk on high reward speculators. We hope you learned a bit from part II of our series. Stay safe out there! Check out the final part of the series here >> Part III
[1] https://wealthydiligence.com/best-investors-are-dead/
