I’m sure you guys are probably not aware, but I’ve been really busy lately in the crypto world.
It is tough for me to write a blog post about cryptos on this at length, especially since I am sure that 90% of readers will have no technical familiarity with the terms, but I’ll try to keep that in mind while I write.
I am completely confident that blockchain technology is here to stay. The current form that it may be in now might be not be much, but how many technology launches perfectly in it’s first iteration?
The first car was built in 1885, yet only in 1927 when Ford released the model T that cars really took off. Before that, it was just a niche thing that strange people dabbled in.
Bitcoin was developed almost a decade ago, and I must admit while blockchain technology is revolutionary, the application on it with bitcoin is very rudimentary. Since then and now, blockchain technology has come a long, long way. That’s one of the reasons Bitcoin has so much internal fighting – they are arguing over the upgrades to apply to it. Ethereum is another very good example of how much blockchain tech has advanced. People are now using it as a platform to skip VCs and get funding directly from the public without any middlemen in between.
This is rocking the crypto world because something that used to be a totally privileged right for the connected and wealthy to get in on some great investments at infancy has now been unleashed to the public to invest in as well. Many companies of our time were not launched without VC funding along the way. Although I don’t think that it is going to change overnight, the ramifications are obvious.
Start-ups want to raise money. VC’s will only provide money with terms and agreements and basically hold them by the balls. Crowdfunding though blockchain technology not only serves as a CHEAPER way to get funding, you also have almost no strings attached to these funds. Also, it serves as pretty sweet marketing to hype up your company.
Why would anyone NOT go the ICO route and choose the VC route instead? Perhaps strategic partnership, but at the expense of founder’s flexibility and decision-making? I don’t see many people opting to go the VC route if they could ICO. The reason why this isn’t more popular (but it is getting more so) is that because people are just unaware that this can even be done, or are not familiar with the idea enough to do it.
That said, there IS a problem with the current ICO scene. I think this has to be made very clear – just because you can put it on a blockchain, doesn’t mean you should.
There are now endless streams of ridiculous things being thrown into the blockchain because they want to ride the hype. I would advice extreme caution when approaching any business that has no reason to be on the blockchain, but are just trying to do so anyway.
Blockchain tech is immensely powerful and it is going to be massively disruptive, but it is NOT going to be applicable for everything.
That said, people and businesses are going to try and try anyway. And many are going to fail. But that’s just life and business. Looking at coinmarketcap, there are 956 cryptos listed. I can assure you, 90% of them are not going to be worth anything in 5 years time. The failure rate of these are high.
Let me repeat – the failure rate is ASTRONOMICAL.
You don’t have to take my word for it, you can look it up yourself. Compared to 6 Jul 2014, exactly 3 years ago, only 19 of the top 100 coins are still in the top 100 today.
And of these top 100 today, I’m sure 3 years down the road not even 50 would still be in the list.
It is important to note that we are still in the very, very early stages of cryptocurrency. I wouldn’t really call it outright gambling because I am certain that quite a few of these coins are going to survive and thrive. However, plenty of them will not.
Just like how many start-ups and small business ideas fail, that isn’t a reason to avoid them completely. It is more about refining your approach and diversifying a bit to avoid total and complete failure.
Some people out there might be advocating putting $10 in each of the top 100 coins and your $1000 investment will be worth fortunes in the future. I really don’t think so.
I think you’d be much better off by instead using really broad cuts to filter out most of the junk and trash and instead invest $100 in the best 10 ideas of the top 100 coins.
Honestly, this isn’t too different for approaching stocks to buy. Use simple filters to weed out the trash, and more and more comprehensive ones until you are left with but a handful of the most promising ideas.
The crypto market is a wild and volatile one, but I can assure you that it will be extremely, extremely profitable in the medium term. With close to nobody even aware of how to get in, this is akin of already sitting in the Titanic’s lifeboat with your lifevest strapped on before the iceberg hits.
We all know that in stocks, we are risking 100% of our capital when we go in. Sure, it might not be LIKELY, but it is still POSSIBLE. I would put it onto you that this is similar for cryptos. Sure, cryptos can COULD go to zero, it is not impossible, but I would place that probability as extremely UNLIKELY.
While in stocks, making 10% a year is considered a job well done, in cryptos, returns could be in the 1000s of %. I think that the risk and reward is VERY assymetrical. There is a ton more volatility that you would have to sit through and stomach, but there is also massive upsides to be reaped.
Don’t get me wrong, I’m still a believer of stocks and traditional assets… for now. At least the next 10 years. But I can guarantee you that in my lifetime we will see stocks traded with blockchain technology. Trustless, no custodian, full ownership, near-instant, almost fee-less. Stocks and other securities are one of the easiest pickings for blockchain technology and I am sure that it is going to happen eventually. So will be the tokenization of sovereign currencies, but that’s a different story for a different day. (For those who know crypto, imagine how easy it would be to auto implement GST into the code such that each transaction automatically sends 7% to IRAS?)
I am very happy that I have found something else to spend my time and efforts on. To be honest, the stock market these past few quarters have been mind-numbingly boring. Cryptos are pushing my brain to the limit these days. It is uncomfortably exciting. The asymmetrical risk/rewards and the 24/7 nature of cryptos has won me over as at least something to occupy my mind until the markets all crash.
It’s a question of when, not if. I am patiently waiting for that to happen.
Until then, I am using all the self-control that I have to stop myself from allocating more and more into cryptos. I still need money to enter the bloodbath in stocks and real estate, don’t I?
While Ethereum has dropped 40% from it’s highs ($258 USD at time of writing), my portfolio is up 18%. I think I’ve been doing rather well for myself. Will crypto prices go down in the future? Actually, I really hope that it does. To me, it is a bubble for the current participants and the froth is still in the midst of settling. I wouldn’t be surprised if cryptos continue to lose value over the next few months. That said, I’m still going to keep investing every month and I’ll be swooping in on opportunities as I see them.
Anyway, this is just a vomit post of the things that are on my mind that isn’t too in-depth and technical. I hope that if any of you guys get into crypto that you guys stay safe, stay level-headed and don’t be taking risks that you don’t understand. If you want to learn cryptos, throw in $10 and read and play around for a month. Don’t throw in $10,000 and try to buy into any ol’ ICO that popped up as an ad while you were surfing around. You might as well just give me $10,000 then.
Stay safe! It’s a crazy world out there!