Cyptocurrency: The Stock Market Alternative
It’s been a while since my last article on Cryptocurrency. A Crash Course to this beautiful new currency and investment opportunity. This article will *lightly* cover differences with the traditional Stock markets and the new frontier of Digital Currency. I’ll give a general direction on why you should invest and some guidance how.
After reading, refer to my previous article that has an abundance of links to the various exchanges and currencies.
The Stock Market has been around for well over 100 years now. It once started as merchants looking for funding for their voyages. You’d “invest” in their trip in hopes they survive, don’t get pirated and it’s profitable. They’d then give your money back and some return. The modern market works in a similar method. A company divides it’s value into an arbitrary number of “shares” that is then sold to investors on several tiers. Common/Retail stocks being what the general population end up with and is most famously known.
With the Stock market you are investing in a company. It has a proven record and history of being in business. You can do a massive amount of research and in a way predict it’s future worth and profitability. The stock in a sense should go up as the company does business and grows. There’s a tangible “asset” associated to trading stocks.
Cryptocurrency on the other hand
Bitcoin and the slew of Alt-Coins are still relatively new. They’re all based off of a form of ledger system and/or blockchain. Similar to stocks there is also a fixed amount in circulation (There are stock splits/merges and other features not covered for simplicity sake). With Bitcoin there will be a maximum of 21 million coins. The last coin is anticipated to be mined in the year 2140. Coins are “found” by cracking the block encryption through mining.
Blocks are broken into problems (jobs) and each miner around the world takes a shot at solving the puzzle. At which point the block and all transactions are revealed/verified. In a sense it’s a lottery system. Solo miners get the full block reward, pool miners get a small sliver of the reward. This is usually based on the number of jobs the miner submits during that round. A round is the time it takes for the pool to crack the next block.
The way Cryptocurrency is set up is similar to Fiat currency with a constant “Quantitative Easing”. There’s a current supply in circulation and there is the inflation of the supply. But there is usually a cap on the supply, at which point all coins are in circulation and that is the forever number. Unlike Fiat currency, coins go up in value as time goes on with more coins and the network difficulty goes up.
With stocks like say Google which is currently trading over $1,000, you have to buy all or nothing. This can be intimidating or even cost prohibitive for new investors. While even now it could be a sure thing, you’d need a lot of money to buy into Google or Apple.
With Cryptocurrency there’s nearly an infinite division you can do on each coin down to the smallest unit a “Satoshi”, which is 0.00000001. This means that even though Bitcoin may be $15,000 to $20,000 you don’t have to buy a coin in it’s entirety. You could buy 0.0002 coins if you wanted. Granted the transaction fee may be well above that. But it’s theoretically possible.
Also unlike Stocks, Cryptocurrency is backed by an “idea” not a tangible business. Maza coin wants to be a sovereign currency for an Indian nation. Unobtanium is just a coin named after a fictional movie metal. Others like Ripple and IOTA have a tangible business plan. Bitcoin Simply wants to be money and a technological proof of concept.
But there is a tangible monetary backing to Cryptocurrency. The millions of miners and mining pools around the world. Hashpower is the “gold standard” of cryptocurrency. Without it, transactions are not verified, blocks not found and the entire network dies. The more backing the currency has the more “tangible value” it holds. Stocks are backed by a company and it’s business model.
The massive growth Bitcoin and other cryptocurrencies has received is intoxicating. It has caught up a lot of amateur investors and cause a lot of people to get rich as well as get very, very poor overnight.
My favorite investment strategy is mining. You generate your own “shares”. Something not possible in the Stock market or Fiat currency. Instead of buying coins directly, you buy Hashpower to generate your own coins over time. The ROI is usually 3-6 months, then you are making pure profit minus cost of electricity and internet. It’s slower, but when Bitcoin swings from $19,000 to $12,000 almost overnight, you’re less prone to panic sell and lose your shirt, house and wife. My miner is paid off, so i didn’t lose anything. I also didn’t sell. When the price goes back up I can sell or reinvest.
If you do choose to invest, wait. Wait for the massive downswing that almost always happens. Bitcoin’s current “range is $10,000 to $19,000. Once it passes the $20,000 mark it’s new low may be the $19,000 mark and will swing wildly between it’s new high and new low.
Until recently, my personal favorite underdog Digibyte would swing from $0.013 to $0.016. That’s a fraction of a penny. But in large quantities it was very profitable. Now it’s pushing the 9 cent mark. Just like the stock markets there is a slew of Cryptocurrencies to choose from, so don’t feel limited to the top 10.
While the above was my observations, the market really took off in 2017. With a vast swath of people, amateur, pro and “get rich tomorrow” jumping in the pool, prices are going to flail like a pissed off squid. There’s also many unknowns, government regulations (always destructive), the Fed and now the Net Neutrality repeal. Comcast or Spectrum could decide to not route Cryptocurrency, thanks to a $Billion payoff, and the entire market crashes.
The volatility, lack of SEC penalties for daytrading and lower trade fees makes Cryptocurrency very enticing for getting rich quick. If you bought 1 bitcoin yesterday morning at $12,000, today you’d be $3,000 richer. On the flip side it could have crashed back to $300 and you’d be broke. This is how easy it is to get rich or flat broke off investing in Cryptocurrency. I have faith it won’t crash for at least 1-2 years, but you never know.
With mining you have a steady income at a diminishing rate of return, but growth as the currency gains value. There’s less chance to lose your shirt over a market crash if everything gets paid off. Or if the coin you’re currently mining is doing poorly, you can switch to any other coin you desire to mine.
Thank you for reading and your amazing feedback on the last article. I’ll be writing more as time goes on to cover questions, speculation and my thoughts on the state of Cryptocurrency.
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