“Should I Invest in Cryptocurrencies?”
Ah, yes, Thanksgiving is coming up and inevitably your aunt is going to bring up investing in crypto.
In my mind, it depends on what you mean by “investing”¹. I view investing as a long-term endeavor reserved for well-proven strategies that have evidence behind them, but some people can take umbrage with that.
To be specific to crypto, can you afford to light that money on fire? No? Then for the love of sweet baby, Jesus, don’t put it into crypto. Yes? Well, then, let’s speculate shall we:
What is it? A regular currency — the dollar — is formerly a piece of paper and now mainly a digital item backed by faith in its underlying government.² Cryptocurrencies are an encrypted (hence crypto )digital currency that is backed by faith in the underlying program.
What can you use it for? Currently, the best use case is quickly sending digital payments to whomever you want. Traditional banking has been resting on its laurels for quite some time. Yes, banking is safer, but by golly it is slow. A main part of crypto is trying to solve that.
What makes one better than another? This is the most debated question inside the crypto community. It boils down to how broad the use case is and how active the developer community is. Each cryptocurrency has its own software; generally, the market values an active and supportive developer community to continue growing the use case of the original crypto. The broader and easier the use case than traditional capitalism will most likely favor that asset by increasing the price, which attracts more people/developers. Similar to cell phones: Apple’s iPhone developer community had an extreme advantage over the Blackberry. And we all know who won that battle.
What are the issues? Mainly security from my point of view. There have been a plethora of hacks and scams that are well documented. Just google it. And the extreme price fluctuations (AKA volatility). It’s gut-wrenching to wake up and see your crypto position down 25% overnight for no particular reason.
Can you handle the craziness?! Deep down this is what you’re going to have to answer for yourself. The hardest and overlooked part of investing/speculation is emotional. Can you handle the crazy up and down of an asset? Maybe you’ll strike it rich or maybe you’ll implode. So, like the lottery, you can only win if you play…
Footnotes:
- Also, depends on what does the word ‘is’ means. wink wink Bill
- Who uses cash anymore!?
- Tried to keep this as high level as possible. I constantly hear people say, “I’m not sure about bitcoin/ethereum, but I’m bullish on blockchain/smart contracts.” Seems like an intelligent thing to say, but I don’t think many of these people understand the underlying technology. I don’t to the level of being able to write about it, so I purposely left it out of this piece.
