Learning the basics
If I’d taken more time to learn some of the basics, I would not have made my start point investing in an ICO. That’s because, they are inherently risky, and almost everything I have learned in the past few months, suggests that the best way to get exposure to crypto is to learn the basics. Going through that learning curve is very likely to lead to an initial investment in Bitcoin rather than something which is likely to be much more speculative. Given that Bitcoin has been around since around 2008, I really did have an irrational fear that I had already missed out, that it was too late to get involved. The truth is, cryptocurrency is very much in its infancy and anyone who has an investment in any form of crypto in 2017, is still very much an early adopter. I would say I’ve already gone from a point of no knowledge, to being reasonably convinced that crypto is not only here to stay, but is very likely to completely transform how we live in the future. I may not be quite as bullish as some of the YouTubers I follow [I’ll link to them later] who have invested their entire wealth into Bitcoin, but I can certainly see a gradual process of moving more and more of my total liquid assets into crypto in the coming years. That view is shaped simply by thinking about the fundamental benefits of having a new form of value exchange. I keep this part really simple, as it’s far better to stick on Netflix and watch a documentary on Bitcoin, but when you think about the current process of moving money from person to person, or business to business, it’s clunky, flawed, and subject to both unnecessary controls, and manipulation. Most of the banking system is dated, and is clearly being disrupted by developments that have been brought about by blockchain. To learn more about what blockchain is [it’s the building block of crypto currency, and the process by which transactions can be made securely and privately] please search elsewhere. Here’s a good start point – http://bit.ly/2nna7Ac . Just don’t pay much attention to the figure shown as the market capitalisation of Bitcoin as it’s very out of date. At the time of writing [and this will also be out of date within hours!] the total value of Bitcoin is close to *£71b.
*A great resource for checking coin values and prices is CoinMarketCap.com.
Most of us have a need to transfer money, either to another person, or to a business. Traditional currencies, the $, or £s we still depend on today, are actually pretty cumbersome. When we think about the way the internet has allowed us to exchange information freely and instantly, why can’t the same processes be used to transfer and exchange value? This is why some have called blockchain the new internet, and Bitcoin, digital gold. Why does it need to be so slow and complex to transact with money? It’s the way it’s always been, but it’s not the way it has to be. We will no longer need to accept that currency is subject to fees, transfers held up by banks, and higher powers manipulating and controlling exchange rates. The alternative is here with blockchain. Transfer of value can now be instant, secure and free.
So back to a focus on investing. Once you understand that the crypto space is made up of close to 1000 different coins or currencies, it’s a matter of trying to work out where best to place your bets. How much of a bet you want to take comes down to a number of factors. Much like any other form of investing, you need to take a view on risk vs reward, short-term vs long-term. Many of those new to the crypto world may not look further than Bitcoin as the only place to invest. That’s a perfectly valid strategy, but it’s useful to try and get an overall perspective on the total crypto industry. Bitcoin is the first mover, and the big daddy of the crypto world. To give you an idea of its dominance, at any given point of time, roughly half of the value of all cryptocurrency assets are held in Bitcoin. To highlight one of the most striking aspects of crypto, the price of Bitcoin has fluctuated wildly in the 3-4 weeks since I started writing this article. At the time of writing, Bitcoin has been close to $6000, or a new all-time high. When I first started writing in early September, one Bitcoin was $4200. It reached a low of around $3100 shortly after the JP Morgan boss, Jamie Dimon publicly called Bitcoin a fraud, and that he would fire any of his traders who bought Bitcoin. There was more downward pressure on the entire space when China decided to regulate the market by banning ICO’s and then closing down its domestic crypto-currency exchanges. These stories were nothing more than another bump in the road, with the overall trend surging higher again as we end October. Investing in crypto is likely to be more volatile than just about any other asset you will ever have been exposed to. One of the factors driving so much interest in crypto are the stellar growth figures that are usually latched onto by mainstream media. With one Bitcoin having been worth as little as $10 in 2011, you don’t need to be a mathematician to know that the growth in the last 6 years has been enormous. The pace of that growth has only increased, serving to constantly bring new money into the space. Many observers will point to Bitcoin as having the potential to skyrocket from current levels to numbers that may seem crazy today. Estimates as high as $1m in 10-15 years are suggested by those with an especially rosy outlook. At a very simple level, the reasoning behind the continued rise of Bitcoin prices is due to supply and demand. Bitcoin has an inbuilt limitation of 21 million coins. Bitcoins are created using a process known as mining. Once that last coin has been mined [not about to happen any time soon], there will be no more. That means, as supply reduces, demand increases, along with prices. I now hold a few Bitcoin, with a view to this being a long-term hold, and hoping that the bulls are right.
So now we know that Bitcoin is the largest component of the crypto industry, what does the rest of the market look like? Other than Bitcoin there is one other currency that commands a large share of the market. That currency is called Ethereum and is fundamentally different to Bitcoin, as it’s not actually a currency. Ethereum was created as a platform built on blockchain, and is used by many of the other crypto currencies as their foundation. From an investment point of view, all you need to know at this point is that Ethereum [ETH] is important, has also seen explosive value growth, and would be considered a good investment for a long-term hold.