This is the first in a series of short articles that we hope the reader will find helpful in getting to understand these new digital tokens and the opportunity they present for the investor.
Are crypto currencies a safe investment? NO… But with “education” risk can be reduced significantly…. Specifically by understanding what to buy and when to buy. Crypto currencies cannot be overlooked given their exponential growth. Currently the collective Crypto market capitalization is over $2 trillion.
Today in Part 1 I will focus on the reasons why crypto currencies have taken root and will grow exponentially.
Background. Currently there are more than 7800 crypto currencies in circulation. They are not all the same. They range from type, use and value.
The pole position among the crypto currencies has been captured by Bitcoin, with a decentralized peer to peer network. Digital currency is recorded on a decentralized ledger referred to as a block chain (Link). Bitcoin was first off the mark and is the largest in terms of market capitalization and user base popularity. . Other currencies have benchmarked against Bitcoin.
The balance of the currencies are referred to as altcoins (Link) and have taken up “positions” in specific crypto currency market segments. Each has their own idiosyncratic attributes that make an examination of their offerings worthwhile to the investor.
What are crypto currencies? Read… The 10 Most Important Cryptocurrencies Other Than Bitcoin (investopedia.com)
What is a good source of information for ratings of crypto currency? I have found this site quite informative …. Weiss Crypto Ratings.(LINK) The site notes that the ratings it awards are not dependent on any other party but are arrived at based on their own research. It is the ratings that makes this site unique and why I refer it to you. I state I have no interest whatsoever in this organization.
The Weiss ratings are based on two variables.
The first is the technology and rate of adoption of the specific crypto coin. The second variable is a market performance (the company’s fundamentals) at a particular point in time for that specific currency. The crypto currencies with ratings of either A and B deserves consideration.
Altcoins. As noted, there are 7800 possibilities. For example, a good virtual technical currency is Ethereum, which stakes out its position in the crypto currency industry by providing a unique software platform, a decentralized financial system for those without access to traditional financial products. The goal behind Ethereum is to create a decentralized suite of financial products that anyone in the world can freely access, regardless of nationality, ethnicity, or faith. It is the second-largest market capitalization crypto currency.
The range of other currencies will be reviewed in future posts. Each have distinctive attributes that as an investor you might find interesting.
Why now do I suggests considering buying crypto currencies? I must confess I have been asked by several colleagues from time to time for my opinion. And on every occasion I dissuaded them from going ahead without further research and talking to somebody more knowledgeable on the topic.
Today my opinion has changed. As part of a diversified portfolio and considering the risk, I am prepared, for these reasons, to support my new mental model and would add to a portfolio.
First. Just about all central banks are growing their debt and deficit exponentially. At the top of the blog I have provided the links to the debt clocks for United States and for Canada. Both are important. I think most rational investors would agree that this runaway growth in debt is not sustainable. Indeed, at the bottom of the US debt clock note the contingent liabilities – there is not enough money in the world to meet these obligations.
Yet the same central banks, in stealth mode, are moving quickly to explore the possibility of digital currency and digital banking. Once implemented, we have moved towards transferring control of our funds to the state. Recall Cyprus (LINK) Why a Cyprus-Like Seizure of Your Money Could Happen Here (forbes.com) and Turkey. Notwithstanding their movement in the backfield, outwardly they are blocking Canadian crypto currencies from obtaining basic banking services (LINK).
It seems to me difficult for the banks to make a legitimate case, given these Canadian crypto currency firms have met the requirements of the regulations set out by FINTRAC. One can only conclude this is a stalling tactic to allow banks time to catch up!
More on this in the next post.
Second. Just like the central banks, major institutions such as JP Morgan and others are also moving silently and quickly to come up with crypto currency products. Publicly they have adopted a traditional defensive strategy, responding with fake news. Again more on this in the next post.
Third. Block chain has found its ‘legs’. Initially, while recognized as something of value, it had not found its niche. But now in 2020-2021 institutions recognize its value. It will be an institution core competency for those who adopt quickly. In this new industrial age there is only the quick and the dead.
Fourth. If I might be permitted to refer to a bell curve and accompanying statistics…The ‘innovators’ have bought in (leaving about 99.7% of the market/area untapped. But I believe the central banks, major investment firms and sophisticated investors are moving now as ‘early adopters’ and will represent the curve area between 95% and 99 .7% of the market (2 standard deviations). And now, as the majority who read financial news and materials such as this, they will quickly form the bulk of the purchasers within one standard deviation at the centre of the bell curve. Latecomers to the party after the majority have purchased (latecomers/laggards) will buy in – but at much higher prices.
So what does this all mean…? Recall the supply is finite… So as the innovators and early adopters acquire their bitcoin position the majority could see a dramatic increase in the demand curve… It will have to shift. And as result the price can rise significantly.
So the question becomes … Which crypto currency or several crypto currencies best meet your needs… In part 2 will turn our mind to some possibilities and other matters.
Appreciate any comments or insights to share with all…
