The exuberance of the crypto market has died down since December 2021. Now several investors are wondering, is it still worth it to invest in them? If so, what are the pros and cons of crypto investing?
Crypto Investing ≠ Crypto Trading
Please note that this is not about cryptocurrency trading or should I say day trading. This is more about investing, whether that be short-term (for a few months) or long-term (a year or more).
Trading and investing are two very different things. They may do the same stuff but the goal is totally different.
An investor is usually someone who invests in a crypto project, believing that it will rise in value for qualitative and fundamental reasons.
For instance, the managing team is extremely competent, or the technology is solid, or it is backed by major players. There are a number of reasons why you would choose to invest in a cryptocurrency.
In trading, however, the whole point is to exit your positions as soon as possible. Day traders take profits several times during the day.
Even swing traders, usually only take a week or two to complete a trade. Maybe a month tops.
Forget the past
Now I’m not gonna talk much about what happened in the past.
I’m not gonna tell you that some coins might 100x or 300x in a matter of months because that only happened in early 2021.
Not saying that current cryptocurrency prices won’t 100x or 300x because I’m almost certain they will at some point. It’s just that that’s unlikely to happen until there is a greater catalyst.
Instead, I’m gonna focus on what is likely to happen today and in the near to long-term future because I know that’s what you need to know right now. That’s what matters, anyway.
Pros and Cons of Cryptocurrency Investing
|1. Explosive growth (extremely profitable)|
No, I’m not talking about 2017. I’m talking about recently price movement.
9 months ago Bitcoin was hovering above $5,000. Now it’s above $9,000. I know it’s not what it used to be but the gains are still substantially higher compared to other markets. Ask any stock investor how often they get 100 percent profit in less than a year. Almost nonexistent.
And if you go to the altcoins, you’d be surprised how high they could go in a very short span of time. Take Chainlink for example. It went from $0.45 in May 2019 to $2.7 today. That’s a 600 percent pump!
And there are more altcoins that had similar meteoric rises from 2019 to now. This is far from over. We will likely see the same level of explosive growth in prices. My bet is that 2020 will be an even better year. But only time will tell.
|1. Falls hard (extremely risky)|
Of course, the opposite is also true. After all, what goes up must come down right?
Matic went from $0.04 to $0.01 in a matter of hours last Dember 2019. That’s enough to give most investors a heart attack.
It has happened before and it will continue to happen again and again. This is just another normal event in this incredibly insane market.
Many people didn’t believe that prices can plummet back in 2017. I made a post in Crypt0s News Facebook group (now shut down) back then, regarding the possibility of a market crash.
It was a logical notion to ponder on since prices have gone berserk for a while and worthless projects were raising millions. I had a feeling it was unsustainable.
They all destroyed me. They called me all sorts of names like “sheep” and “devil spawn”. Whatever.
You know how it turned out. If not, google “Crypto Winter 2018”.
|2. Crypto market never sleeps|
Unlike traditional markets, the crypto market runs 24/7. The money keeps flowing and the party never ends!
Traditional markets like the NYSE and Nasdaq open at 9:30 am and close at 4pm. That means you only get to trade in between those timeframes, which is only 6.5 hours per day.
They’re close on weekends too. How boring is that?
|2. It’s hard to quantify their value|
Placing a value on a cryptocurrency is extremely difficult and those who have managed to do so, have often been proven wrong by the market.
But what makes it so hard?
Well, in traditional markets, investors use key metrics to determine the innate value of, let’s say, a stock. This is called fundamental analysis.
They use metrics like Price-to-Earnings ratio, Debt-to-Equity ratio and many more similar jargon.
Being a nascent market, there are no such metrics for cryptocurrencies. Although, some analysts like the staff from Bitcoin Market Journal have created a scorecard in order to do similar things. You can check it out, but personally I don’t think it makes it easier to analyze.
There are way too many variables.
|3. More chances of upside (It is the future of the internet) |
Mass adoption is the common dream of the entire crypto community, including me. We know it’s gonna happen eventually. It’s not a matter of if, but when.
In between that time and now, it’s bound to be a roller coaster ride. And many people are scared of this but that’s usually because they are looking at the lower timeframes of crypto prices.
But if you actually take a step back and zoom out to the yearly price trajectory of Bitcoin and other cryptocurrencies, you can see that it’s actually in an uptrend.
As time goes by, cryptocurrencies are likely to rise, and we’ll likely not notice it because we are so caught up in what’s happening right this instant. But great value investors know better. They analyze trends, study the market and the technology. Therefore, they know it’s gonna go further.
You see, the developer activity on blockchain and crypto projects these past years is reminiscent to the events of the early internet back in the 90s.
30 years ago, the internet was almost nonexistent. But now, we can’t even picture a world without it.
Back then, the internet hacktivists faced great resistance. Not everyone believed the internet would prevail. Same thing will happen with blockchain.
Governments and banks will oppose this, but they’ll figure out that it’s useless soon enough. They’re fighting a losing a battle. We know how this ends.
The future of tech rests upon the shoulders of geeks eating fast food and pizza in their garages. Right now, they have their eyes on blockchain and they’re not gonna stop.
So investing in cryptocurrencies means investing in those geeks. I don’t know about you but I trust them more than those big guns in suits.
|3. Mass adoption may still be a decade away|
This is a bit disheartening to believe because we in the crypto space just aren’t that patient. You probably aren’t and neither am I.
We are young and anxious. We want things to happen right away.
But the market doesn’t care. As long as crypto/blockchain technology does not surpass payment processors like Visa in terms of speed, reliability, security, and virtually everything else, we’re not gonna dethrone legacy financial systems just yet.
And as you already know, it’s gonna take a while before we become the next wave of crypto millionaires (or is it?). This is another reason why you might want to sell your coins for now.
It’s funny how the longer you are in this industry, the more you realize that we have a long way to go.
I could be wrong about this though. Mass adoption might happen in 3 years or so. There are a couple of scenarios this could happen in theory. But that’s a topic for another time. ?
| 4. Mismanagement risk |
I’m talking about crypto startups. Let’s be honest here. A lot of these so-called technopreneurs have raised millions of dollars without a clue on basic accounting, operations, and just about every essential element in running a successful company.
That’s why it is always important to do extensive research on the founders and dev team that run the project, before taking a single penny from your pocket.
When I say extensive research, I don’t mean just looking up their LinkedIn profile. That can easily be faked. You have to go further than that. Don’t trust, verify.
The greatest treasures are always hidden in the most treacherous waters. Just be careful you don’t get eaten alive.
|5. Many governments are actively restricting cryptocurrency usage|
Governments have almost zero skin in the game. And the only reason I say almost is because I don’t believe anything is ever certain.
But governments have nothing to gain, yet have so much to lose.
If crypto prevails, they will lose their control over the economy, which in my opinion, is wonderful. But governments don’t really agree with me. What else is new!?
But this makes it difficult to invest in cryptocurrencies in some parts of the world.
So is crypto investing a bad idea?
Yes, there seems to be more cons than pros in crypto investing. But don’t get it twisted. It’s not merely about the quantity but also about the quality.
Not all cons are that big of a deal. For instance, mismanagement risk can, in essence, be mitigated by doing your due diligence.
Another con: cryptocurrencies are hard to quantify. Yes, they are, but you don’t have to quantify dodgy new ICOs. You can stick to the ones that have low market cap and but have already proven themselves.
For instance, Enjin Coin; still low cap but already making big moves including partnerships with Samsung and other major game communities. Not to mention they have a super awesome gaming ecosystem.
Okay that’s enough. I’m not gonna shill Enjin. I don’t even own any. But you get the point. As long as you err on the safe side, you should be fine overall.
The thing is, you need skills if you want to make money off the crypto market. It’s not 2017 anymore so don’t expect overnight success. But, this industry still has more opportunities than almost all traditional markets combined.
There are more risks so be careful and always do your due diligence. Research research research. Don’t trust, verify.
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