It’s the 21st century, and everything is getting smarter. From smartphones to smart homes, it’s becoming easier and easier to feel stupefied by emerging tech if you don’t keep up. My new hobby is playing with smart money, aka cryptocurrency, and I wanted to share my experience to help you get started investing in this rapidly growing sector (or at least be able to fake your way through a cocktail convo about it).
Some of the buzzwords you’ve probably heard include Bitcoin, blockchain, cryptocurrency, wallet, or Litecoin… But what do they all mean? Bitcoin and Litecoin are 2 of hundreds of cryptocurrencies. Imagine a smart dollar that is capable of recording the details of every transaction it’s ever been in.
It will have the account ID (but not names) for both parties, how much money the total transaction was, and even a time stamp… suffice it to say it’s impossible to counterfeit. The data for these transactions is stored in what’s affectionately called a “block,” and the linked series of these blocks are called the “blockchain.”
Cryptocurrencies aren’t tied to a country (like forex) or a company (like stocks), and they trade 24/7. The “Wallet” is basically a virtual currency exchange that allows you to trade your antiquated fiat currency (dollar) into any of the cryptocurrencies offered by that particular wallet.
So Bitcoin and Litecoin are 2 examples of cryptocurrencies that you acquire through your “wallet”, and blockchain is the structure of relational data storage that provides the ledger and backbone. Make sense? (Just nod)
Due to the inherent anonymity of blockchains, a lot of the news about these new currencies has mentioned the ties to black markets and ransomware, tainting cryptocurrencies with nefarious connotations. Despite this, Bitcoin has gone from $0.008 in May of 2010 to almost $2800 at the time of this writing (5/25/17).
With transparency being the primary concern of any regulatory body, the new focus is being able to provide identity verification steps for wallets and trading platforms to make SEC and pals happy.
As companies and financial institutions are becoming keen to the idea of cryptocurrencies, you should expect to see them infused more and more into our day to day commerce.
Why Cryptocurrencies are Here to Stay
Even when I speak to friends who are savvy investors, it seems many are unfamiliar with cryptocurrencies and usually speculate as to whether or not it’s a fad. I’m going to argue cryptos are here to stay. First off, the transactions are immediate, which saves significant time when you think about the last time you waited for a wire transfer or merchant transaction to clear.
The longest part of the process to buy cryptocurrency is converting from USD, which takes 5 business days. Once my USD is in my crypto-wallet, buying, selling, and transferring is instantaneous.
The fees for transactions are also dramatically lower, which is another major advantage when you consider how many fees are generated by traditional financial systems on a macro and micro level.
Not only are there a set amount of cryptocurrencies (making it impossible to make more) but it’s also completely decentralized, freeing it from suspicions vulnerability to manipulation and institutional fraud.
But none of this means anything unless you’re able to spend the currency, right? If only big names like Overstock, Tigerdirect, or Shopify accepted cryptocurrency, right? Well, they do. As more and more of the household brands accept payment through cryptocurrency, it’ll only make it more and more obvious that it’s here to stay.
I’m even pushing our developers to add BTC, ETH, and LTC payment options on FitFoodFresh.com (just to make things fun for our CPA). Over 250,000 retailers in Japan are now accepting cryptocurrency… I’m not sure where “critical mass” would be considered, but I think it’s safe to say it’s been reached.
Purchasing
While purchasing some of the more popular currencies has gotten much easier, a lot of the cryptocurrencies, like Ripple (XRP), require a couple extra steps. Depending on the market cap and volume.
You may find it worth the extra time and headache to grab some of these currencies, as they can be expected to shoot up when they’re eventually picked up by a popular platform, which is exactly what happened to LiteCoin (LTC) when CoinBase (a popular cryptocurrency “wallet”) added them to their trading platform with BitCoin (BTC) and Ethereum (ETC).
I like to look at barriers to entry as advantages over the lazy and there are a lot of up and coming cryptocurrencies that have amazing potential.
Strategy
I’ve given up on creating a trading strategy, for now. But I’m predicting a bullish trend as more and more people are learning about cryptocurrency each day. I believe that leaving my positions where they’re at seems to assure me a win.
Trying to find triggers, patterns, and correlations, seems to be impossible. I’ve even researched the countries who control the most volume to see if their work schedules had any consistent influence, but failed to find anything useful.
The nature of cryptocurrencies seems to leave them in a hybrid category, with some characteristics of the stock market and some familiarities of the foreign exchange market. Most movement seems to be more dependent on articles and press releases about the currency rather than global news.
I’m also learning to watch relationships between cryptos instead of just watching their performance against the dollar, as I’ve notice some advantages in the ability to directly buy cryptos with cryptos instead of having to trades to the USD first.
The growing popularity of cryptocurrencies is providing a lot of opportunities for businesses and individuals who are embracing this new form of commodity. As more businesses and financial institutions take advantage of the quicker transactions, cheaper transactional fees, security features and other characteristics unique to these new currencies, we can expect demand and value of cryptocurrencies to grow.
Whether you’re looking to add some diversity to your extensive investment portfolio or just scraping together enough to get started, the potential upside of cryptocurrencies is hard to ignore. Do your research, figure out your risk tolerances, and see if digitizing your dollars is right for you.
