Crypto Currencies - Get Your Feet Wet
So you are either invested in crypto currencies or thinking of getting in at this point. Crypto currencies are now well into the mainstream media. The headlines touting new highs for crypto coins seem to be popping up every other day. Bitcoin, the daddy and most popular of them all, even swelled up to 20k per coin a few weeks ago.
In addition to new highs for crypto coins, we also see more financial institutions jumping into the crypto market. The institutions from the old financial services school are now advertising new crypto services from IRAs to Options. Of course, this is all linked to the massive moves upwards in regards to cryptos such as Bitcoin. I imagine money managers everywhere scrambling to find a way to satisfy their clients' curiosity by giving their clients some exposure to the speculative world of crypto coins. The press just fuels this curiosity - as cryptos go up each day, the money managers find themselves worried they may miss the most aggressive moves upward. Even if this is a bubble, many investors do not want to miss the wave in upward price momentum.
My thoughts in regards to crypto is get your feet wet by getting educated. Invest is small, incremental bites while you learn about the asset class before getting deeper. Without question, no one should be invested more than 10% of their net worth into crypto. These currencies are not for the faint of heart either. Crypto coins are extremely volatile due to all the newbie driven speculation out there. You have to figure when people are coming out of the woodwork to invest that we are entering into the bubble territory.
Did you just say bubble?
Yes, but I look at the “bubble“ as only temporary. Sometimes people compare bubble with zero asset value. I’m not saying that. I’m saying that speculators will drive prices up sharply and those same investors will also get out just as quickly after they get burned. What will be left is the true perceived market value. I think the crypto-bubble has many similarities to the dot-com bubble of 2001. What we had in 2001 was a lots of speculation on anything with a ".com" appended to a domain and company name. The dot-com get rich quick gold rush certainly had similarities to what is going on now with crypto coins.
With bubbles you always see signs of irashional investor rushes to getting in to invest, which in turn forms sharp price increases in asset value. Which in tern drives more interest in the investment. On recent example of an irrational rush of investors came from a publicly traded tea company that changed their name to “Long Blockchain Corp." To be clear we are talking about a tea leaf company. You know the kind of tea where you dry leafs and soak in hot water (yeh that kind). They added the word "blockchain"to their name and essentially became a "blockchain expert" to the public investing market overnight by simply adding blockchain to their company name. Shortly after the name change, their shares jumped up 289 percent on New York - NASDAQ trading.
The tea blockchain example clearly demonstrates that investors are starving for ways to get into crypto investing, through any means available. This has to signal to the rational investor that rabbid speculation is going on and investment into crypto is clearly a bubble . Always with bubbles, the question is how big will it go? And, how much will the crypto market contract after the bubble pops?
So, in closing, I just want to reiterate that it is wise to pay attention and even go so far as investing a little into a crypto-currency or two. I think that if we are going towards a crypto coin future that it’s wise to hedge your bets, even if you are pessimistic on the crypto coin idea. Blockchain and digital currencies are here to stay. The education you get from investing minor amounts will be well worth the risk of your chosen crypto coin going down in value.
Now that we discussed the hype and risk profile of cryptos, I will look deeper with later posts. The blockchain and crypto coin applications are vast and go far beyond only Bitcoin, so plenty to chew on in those discussions.
*Disclosure: I am not your financial advisor and I don’t play one on TV. You should expand your research to determine for yourself which investments are right for you. As part of my personal investment mix I do own some crypto currency, which includes Bitcoin.
About me: I’m mostly focused on internet growth, culture, and startups and am the COO at Wafer Inc. When I can find time between being a co-founder and life I enjoy writing, mostly here and occasionally on Linkedin. If you enjoy my writing, subscribe or follow me on LinkedIn to see more in the future.
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