How to Know If You Should “Invest” in Cryptocurrency

How I Got Involved in Cryptocurrency

First of all, I will address the elephant in the room. Cryptocurrency is absolutely a bubble that is going to go through some serious ups and downs, and it is also not considered an “investment” but a “speculation.” Granted, speculation is not a bad thing if you understand the system you are betting on and do not overexpose yourself to too much risk. People speculated in plenty of fledgling industries throughout history that many people laughed at or didn’t understand, such as electricity, airplanes and the internet, and those industries thrived into some of the leading technologies that we use today. Just look at the tech bubble of the late 1990’s for example. When the bubble popped, many companies disappeared, but many others (Google, Amazon, Paypal) are some of the most valuable companies in the world today. So no matter what you think about blockchain technology and cryptocurrency, whether you think it’s worthless or priceless, well in some way you are probably right. It just depends where you are focused and the timing of its development.

“Just because there’s a bubble, doesn’t mean the whole industry is worthless.”

It wasn’t until 6 months ago when cryptocurrencies started to take off that I started to learn more about the topic. I won’t even try to say that I knew what was coming years before everyone else, because I had no idea what Bitcoin really was until fairly recently. A friend of mine started buying cryptocurrencies and telling me about the potential for change this new technology could bring in the future. I was naturally curious and spent about a week digging into anything I could learn about blockchain technology and cryptocurrencies.

Side note: If you don’t understand the underlying technology behind cryptocurrencies, called blockchain, then I recommend reading this article to get a brief overview of why it’s a big deal.

Basically, blockchain technology has the potential to cut out the middleman in many different industries and facilitate the developments of a network economy. No more banks to tell you how much money you have, no more Spotify to provide people with music, no more Paypal needed to send money to people. Everything will be done peer-to-peer. I could send you money directly without a bank, you could allow me to listen to the music you create, every computer in the world will have ledger of how much money everyone has. Nothing is stored on servers and no one charging you for these services. This is generally the value provided by blockchain technology. It’s a bit more complicated than this, but hopefully you get the picture.

After I understood the value that blockchain and cryptocurrency may provide in the future, I decided to put some money into this developing technology because I made my own conclusion about the value it could have and wanted to place a bet on whether or not I may be right. No matter how great you think something is, unless you are in control of it’s future, then it’s purely a speculation on what will happen.

Though I do hold a few different cryptocurrencies currently, I actually don’t hold any Bitcoin. I do think Bitcoin has value because it allows people to pay for things without a bank or third party getting involved, but I think it is incredibly overvalued relative to how much usefulness it currently provides society. People are buying Bitcoin who have no idea what Bitcoin is or what they can even do with it, which is just asking for a bubble once people realize that they can’t do much with Bitcoin. Right now, the price is reflective of potential value in the future. However, there are blockchain technologies out there that have the potential to disrupt major industries and develop HUGE user-bases, and this is why I think all of this stuff is important.

For example, Google stock is worth money because they bring in billions in revenue every year and provide consistent value to shareholders by being the top information provider in the world. So then hopefully blockchain technologies will provide value to coin holders in the future as well by reducing the cost of business by eliminating 3rd parties and allowing people to do business directly on these established networks. I think banking and money transfer will probably be the first industries disrupted by blockchain, and this is where I’m currently placing my bet. I’m not going to say which coins I hold because no one should buy them unless they understand them.

The Important Things To Know

So if you are wondering if you should get involved in cryptocurrency and blockchain, there are some important things that you should probably know:

You are betting on a technology more than a currency – Like many other types of investing or speculating, real money is made off of value investing, which is investing for the long term with hopes that what your investing in will bring more value to society. If blockchain technology really does begin to replace 3rd-party institutions and middlemen then it will be providing more value to society by eliminating or reducing these fees, thus being worth more money. It’s the blockchain technology that is truly valuable, not just Bitcoin.

You need to understand the system you are betting on – Plain and simple. If you are putting money into Bitcoin because someone told you it’s a great investment, then it probably won’t work out well. If you are really in this, then you need to understand everything about the subject of blockchain and cryptocurrency. Do your homework.

You are value investing, not day-trading – Similar to point 1, but you should be investing for the long term, not trying to hop into Bitcoin at $15,000 and get out at $20,000. You probably wouldn’t make any money unless you have millions to start with, or you’ll just sell when the price drops 50% overnight because you aren’t thinking long term.

Be willing to lose it all – I put in less than 5% of my assets into cryptocurrency in case this all does turn out to be 100 years to soon or government regulations shut it down. Also, security is a real issue at this point and coins can be stolen or lost VERY EASILY. If I lost it all then it wouldn’t be the end of the world for me.

The Choice Is Yours, But You’ve Been Warned

If you have done your research, assessed your personal finances and understand the process, then maybe you are ready to get involved in the wild west of cryptocurrency speculation. But you have been warned, because you could be hacked, lose your private key, watch as coins disappear or value plummets overnight. If you’re not ready for that type of pressure or willing to put in the time to understand the system, then cryptocurrency speculation probably isn’t right for you.

However, whem Thomas Edison invented the lightbulb, Henry Ford started mass-producing cars or when Jeff Bezos started selling books online via Amazon, no one knew what would become of these industries and how valuable the companies associated with them would become. Crazier things have happened throughout the history of technology development. Blockchain technology may revolutionize the financial system in the next 10 years, or it could be forgotten due to government regulation and poor security. Either way, it would be more painful to me to know that I could’ve gotten in before it changed history than to lose a small sum of money. Though many people out there are naysayers, I’d rather be on the side that chooses to believe in change and new technology.

What do you think is the future of Bitcoin and cryptocurrency? Are you willing to place a bet on a new technology? Leave a comment or send me an email!

NYPFGuy