Crypto Currency Investing, Yes or No?

I often get asked what I think of Crypto Currency Investing.  That’s not a question that I can answer with a simple yes or no, so here are my thoughts.

Two types of investment

  • Direct investment in coins themselves.
  • Investing in technology that surrounds crypto currencies.

Direct Investment in Crypto Coins.

The very nature of the work investment begs that prudence and forethought be applied. If you don’t know why you are in investment, you shouldn’t be in it. Every good, professional, investor knows how they are going to make their money. If you’ve just put money into crypto currencies simply because it will grow and you don’t know why it will grow, then you are likely making a big mistake.

A good investor will always consider what could happen to their investments. I’ve often written down my expected and even my potential less desirable outcomes from my investments. So let’s look at a potential direct crypto coin investment:

Crypto Currencies could continue to rise in value and price

This would be great. You put money in, you get money out, sometime when you sell the coins. If you knew this was going to happen then, buy as much as you can, might be an effective strategy.

While this does appear to be what is happening to crypto currencies, is this likely to continue forever? They are, after all, currencies. I haven’t seen the value of the Canadian Dollar increasing by leaps and bounds. Currencies may be a store of value, but unless you a forex investor, they generally are not an investment vehicle.

Crypto Currencies could flatline

Crypto currencies flatlining is not an unreasonable outcome; they are currencies. They do not have intrinsic value like a stock has nor do they hold collateral like a debt obligation can. There are opportunity costs in holding crypto currencies. You are not getting the return on some other investment. If you had invested in the S & P 500 for the last 3 years you would have averaged 17.94% (according to Yahoo Finance), or your investment would be up 64% over that period. Consider that the opportunity cost.

Crypto Currencies could drop in value

This is the real problem. What are they really worth? It’s a currency, they are only of value if they are used for exchange by business and individuals. If they aren’t freely exchanging, then they could drop in value.

Even worse, if a government declared them to be illegal, that would really drop them in value. There is no guarantee.

However, there are other ways to invest in crypto currencies which also provide excellent upside, although the same diligence before entering the investment must be performed.

Invest in Crypto Currency Technology

The blockchain isn’t going away!

We are developing new technologies all the time to make the use and adaptation of blockchain derived properties more prevalent.

Trading markets have grown for Non-Fungible Tokens have formed. These markets could change the market for Art and collectables.

Other companies are trying to build investment vehicles that allow customers to own Crypto Currencies without direct investment. No longer do you need to have a wallet, you could just by a fund that owns the currencies for you.

Banks are investigating how to use blockchain to make transactions more secure.

If you invest in these companies, now you can benefit from the rise of crypto currencies, still capitalize on spin off technologies, which lowers the direct risk of your investment.

Summarizing Crypto (or any) investment strategy

The following is a wise check list to follow when you are investing in anything, and particularly Crypto Currencies.

  • Invest only what you can afford to lose
  • Understand how you are going to make money from this investment
  • Know your potential and probable outcomes and corresponding returns.
  • Harvest gains as a means of reducing risk as your investments grow.
  • Diversify when possible.
  • Know when to get out, you will never go broke taking profits.

Disclaimer and things to know:

Edgar Scott does not own any Crypto Currencies, nor does he have investments in companies whose primary purpose is to trade or develop crypto currency technologies.

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