You’ve read about Crypto on the news and it’s peaked your interest and now you’re probably wondering if after an 800% rally since the start of this year it’s worth investing now. Have I missed the rally? Is the golden opportunity to be an “early” investor over? Why did I ignore bitcoin when someone told me about it when it was at $20? Is cryptocurrency good investment still?
What about Bitcoin?
These are all questions people are constantly asking themselves and it’s one that I asked myself when I first got started as well and we’ve come a long way since then. Below I’ll go over a few different reasons as to why I believe it is still a great time to get started investing in cryptocurrencies.
Bitcoin / Cryptocurrencies are a Revolutionary Technology
The single most important reason to invest in cryptocurrencies today is that the technology / application of them is truly revolutionary and can / will change the world in the years to come. Opportunities are not all created equal in the crypto space but that is something we can go into more detail in another article. We’ve included some of the benefits cryptocurrencies provide their users below.
Keep in mind that there are many different types of cryptocurrencies including those that are meant to serve as a store of value, a currency, utility tokens that are staked to maintain a network, privacy focused coins, among many others. We will go into more detail on those in a separate write-up.
New Asset Class
One of the most important reasons that cryptocurrencies will become a staple investment going forward that most people don’t talk about is that it is an emerging asset class. When people meet with their financial advisors or whoever provides them with financial advice they typically get told about bonds, stocks, real estate, precious metals, and occasionally other private investments.. The new one that will likely be added over the next year or two will be cryptocurrencies!
They are truly revolutionizing a space and once the legal framework is put in place to allow advisors to make these types of recommendations we should significant amounts of new capital get allocated to the space. Even if 1% of the world’s wealth was to get allocated into crypto we would see a significant increase in prices from where they are today.
Why will crypto become a new asset class you might ask? Well, as it is currently disrupting almost every industry globally we will see cryptos become a necessity in everyone’s portfolio as a means to protect their wealth even if they don’t see it as an investment for incredible upside because they’re more risk averse.
One of the most interesting aspects when it comes to investing in cryptocurrencies are the asymmetric return profiles. What does that mean? It’s when the upside potential in a set of possible outcomes associated with a particular investment or investment strategy is significantly greater than the downside risk.
Basically, when you win you win BIG and when you lose, you tend not to lose as much. Given the entire crypto space is made up of asymmetric return opportunities you benefit greatly from portfolio diversification because if you invest in 4 coins and 3 fail but 1 of them goes 10x you would still make money assuming you invested an equal amount in all 4.
The other benefits from this is that small $ investments can yield significant returns over long periods of time so no matter how big or small your initial investment is, you should consider some exposure to cryptocurrencies. With all that said, long-term fundamental focused strategies benefit the most from this as these returns can sometimes take long periods of time to play out so it is important you dig into everything you’re investing in deeply to get the most benefit. What do you think… is cryptocurrency good investment based on what you’ve read thus far?
Is Bitcoin / Cryptocurrency a Bubble?
The thing that you’re probably seeing the most these days as you contemplate whether or not to invest in cryptocurrencies is that it is a bubble! The beautiful thing about what they’re saying is that let’s say it is a bubble and we are already in the middle of it.. That’s the greatest opportunity of each and everyone’s life time as long as you use proper risk management.
Why? Because if you invest now and it goes up 50% and you pull out 10% and then it goes up 50% more and you pull out another 10% and that continues and continues before you know it you will have recouped your entire initial investment and more. Then when that bubble pops you get in there and buy the crash when everyone who didn’t properly manage their risk has to sell because they don’t have any capital to deploy.
Why might this be a bubble you might find yourself asking.. Well, anytime in history you’ve seen a revolutionary technology that causes a paradigm shift bubbles happen. Railway mania in the UK, Tech bubble in the US, real estate boom that caused the financial crisis in 08’ which introduced a myriad of new derivatives to the financial world, among others.
What’s different about the crypto “bubble” if you want to call it that, is that it is a GLOBAL movement where you have some people investing because they speculate that it will be more valuable whether it is because it is a store of value or a utility token and others who buy the coins because they see it as a means of freedom from traditional institutions such as banks, credit card companies, and others. There are literal communities being built around the development of cryptocurrencies as people come together to build via open source platforms, social media, and meet-ups all around the world.
Major Influencers are Watching Cryptocurrency / Bitcoin Closely
You have a lot of people on both sides of the house saying that cryptocurrencies / blockchain have potential to revolutionize the world while others think it’s a complete fraud. Just remember that there is no such thing as bad publicity and all the attention focused on the crypto space right now is just about the best thing you could ask for. Oh, many cryptocurrency exchanges founders such as Brian Armstrong and Changpeng Zhao – also know as CZ are now billionaires thanks to Bitcoin and cryptocurrency. They have a combined net worth of $2.5 billions, with CZ at $1.2 and BA at $1.3B. Are you still asking is cryptocurrency a good investment?
One thing you’ll notice as you go through the list (there’s a lot more than what’s included below) is that the ones that are bearish usually just have a blanket statement that says it’s a fraud or a bubble without much justification and the ones that see it as a viable asset have spent time actually digging into it to have a well-informed view.
You should also consider that many of these negative commenters will be negatively impacted by a decentralized revolution that takes the power away from centralized institutions. I’ll include some of the names that have been talking both positively and negatively about the crypto space below.
Jeff Currie (Global Head of Commodities Research, Goldman Sachs) – I don’t see why there is all this hostility to it. Bitcoin is not much different than gold because it doesn’t have liability attached to it, by definition, like a security.
Joseph Stiglitz (Nobel Prize-Winning Professor of Economics, Columbia University) – Bitcoin is successful only because of its potential for circumvention, lack of oversight, so it seems to me it ought to be outlawed. It doesn’t serve any socially useful function.
Severin Cabannes (Deputy CEO, Societe Generale) – Bitcoin today is, in my view, very clearly in a bubble.
Lloyd Blankfein (CEO, Goldman Sachs) – I don’t have an investment in it, but I’m not willing to pooh- pooh it, and that’s why I say I’m open to it.
Tidjane Thiam (CEO, Credit Suisse) – From what we can identify, the only reason today to buy or sell bitcoin is to make money, which is the very definition of speculation and the very definition of a bubble.
Bill Miller (Founder, Miller Value Partners) – I believe there is still a nontrivial chance bitcoin goes to zero, but each day it does not, that chance declines as more venture capital flows into the bitcoin ecosystem and more people become familiar with bitcoin and buy it.
Peter Thiel (Co-Founder, Paypal and Billionaire VC) – Bitcoin critics are “underestimating [it] … It’s like a reserve form of money, it’s like gold and it’s just a store of value. You don’t need to use it to make payments.
Kyle Bass (Founder, Hayman Capital Management) – I think it will be an asset class that will work over time. I’m not sure how to value it yet, I really have no idea … I think there’s a digital gold rush that’s gone on. I think a whole bunch of people are going to lose a lot of money. These ICOs?
You’re going to see a bunch of them go completely broke. A bunch of them are frauds, and that’s going to be problematic for all the people that just rushed in. And so I feel like it’s a bit of a mania at the moment, but I think in the long term, it’s a viable asset class.
Christine Lagarde (Managing Director, International Monetary Fund) – Not so long ago, some experts argued that personal computers would never be adopted and that tablets would only be used as
expensive coffee trays. So I think it may not be wise to dismiss virtual currencies.” Countries with “weak institutions and unstable national currencies” may see growing use.
Mike Novogratz (Founder, Galaxy Investment Partners) – This is going to be the largest bubble of our lifetimes … Prices are going to get way ahead of where they should be. You can make a whole lot of money on the way up, and we plan on it.
Jamie Dimon (CEO, JPMorgan Chase) – It’s a fraud.” If a JPMorgan trader began trading in bitcoin “I’d fire them in a second. For two reasons: It’s against our rules, and they’re stupid. And both are dangerous.
There are Companies Actually Using Bitcoin & Crytpocurrencies!
There continues to be a significant increase in the number of people / companies accepting bitcoin and other cryptocurrencies as a form of payment. There have been numerous instances of houses being sold for bitcoin or Ethereum and now you have some of the major companies such as Overstock, Tesla, Lamborghini, and many others that accept bitcoin as payment.
Below we show a chart of the significant change in the number of physical retail locations that now accept bitcoin as payment back in November 2013 to now August 2019.