Dec. 30, 2022
With all of the negative headlines around cryptocurrencies many are asking the question of whether or not investing in crypto is a good idea.
I’ve always followed the famous investing maxim “buy when there is blood in the streets.” Blood is flowing through the crypto streets as I write this. As such, I think there are a lot of opportunities in the space.
Why do I feel that way and why should you invest in crypto?
The truth is that crypto is the best performing asset class in human history.
The Bitcoin Standard
Just look at Bitcoin.
Created in 2009 as a decentralized alternative to a failing fiat monetary system, it was initially only adopted by a few cyberpunks, libertarians, and computer geeks. One could easily mine it with a basic computer for free and it was traded among miners and other crypto enthusiasts for mere pennies.
By 2021 it had surged to an all-time high of $69,000. From the bottom that’s a gain in the millions of percent!
Much of Bitcoin’s price momentum is triggered by speculation but there are underlying factors that explain its long-term success. The most important of which is Bitcoin’s decentralized nature and fixed supply. These two properties make Bitcoin the soundest money on the planet.
Fiat currencies, on the other hand, are backed by nothing but government decree. And as we’ve seen time and time again, they inevitably fail. As a country’s economy worsens, governments print more and more money in a desperate attempt to prop things up. Rampant inflation follows to the detriment of the citizenry.
Bitcoin is not under the control of a corrupt government or central bank. The network is maintained by thousands of computers that verify the massive online ledger known as the blockchain. No one can print trillions of Bitcoins out of thin air either. Its code determines that only 21 million coins can ever be mined into existence.
Computer code and cryptography have replaced a corrupt financial system maintained by those who wish only to enrich and empower themselves at the expense of the common people.
What Determines Bitcoin’s Price?
With everything Bitcoin has going for it there are four main external factors that influence its price:
Sentiment: All assets are affected by general sentiment regardless of how good or bad their fundamentals are. As more and more people buy into something and the price goes up, people begin to think it will increase forever. This usually marks the top.
Similarly, when the price goes down with no end in sight, people begin to believe that the asset will never again increase in value. This usually marks the bottom of the asset.
Mining: Bitcoin mining has a major price impact on Bitcoin. Miners utilize increasingly powerful computers to process transactions on the blockchain and are rewarded with new Bitcoin in return.
Because they create and accumulate new coins, miners can impact the entire market. A certain number of Bitcoins have to be sold off to cover electricity and maintenance costs. But the choices they make with the remaining coins can impact the price in a big way.
If miners feel like the price of Bitcoin will be higher in the near future, they tend to hold on to most of their coins reducing the supply on exchanges. This creates strong support for prices.
Alternatively, if miners feel like the price of Bitcoin is on a downward trajectory, they sell their coins, which increases the supply driving prices lower.
Money Supply: Potentially the largest factor impacting Bitcoin’s price is the growth of the money supply. When central banks print more and more fiat currency, the price of Bitcoin rises in almost direct proportion to the new money created.
This is the supply-and-demand aspect of Bitcoin’s price. As more and more increasingly worthless fiat money is printed, it ends up chasing an ever-decreasing supply of Bitcoin. Fiat currencies continue to increase in supply year-after-year as the new supply of Bitcoin gets cut in half every four years – a process called the Bitcoin halving.
Network Effect: This concept is very simple – the more people who create cryptocurrency wallets and convert fiat to Bitcoin, the more valuable it becomes. This effect creates a positive feedback loop as the price of Bitcoin goes up, more people tend to join the network.
Even though Bitcoin is the original, thousands of alternative cryptocurrencies called “altcoins” have sprung up in recent years. And many of these projects have witnessed incredible gains.
One notable example is Shiba Inu. Created in 2020, it was a self-proclaimed ‘meme coin’ that sought to supplant Dogecoin as the top dog coin in the crypto space. It was capped at 1 quadrillion coins, which means that early investors could buy billions of them for relatively little money. This made everyone feel like a Shiba Inu whale.
In fact, Shiba Inu could be purchased for just $0.00000000051 per token on its first day. In just a little over one year the token surged all the way to $0.00002571. That’s a gain of more than 5 million percent! It made at least one investor a billionaire.
Small market-cap altcoins are the most powerful vehicles for speculation ever created. Are they risky? Heck yes. But they can also make you rich practically overnight.
Layer-1 Protocols & Ethereum
But not all altcoins are lottery tickets in a new wrapper. With the advent of layer-1 protocols like Ethereum, programmers are able to build applications on top of blockchains. These have revolutionary potential for many aspects of society.
Just a few key innovations are:
- Decentralization: One of the most important aspects of blockchain technology is that it is decentralized, meaning it does not rely on a central authority or server to function. This makes it resistant to censorship and tampering, as there is no single point of failure.
- Transparency: Blockchain technology allows for a high degree of transparency, as all transactions are recorded on a public ledger that is distributed across a network of computers. This makes it possible to track and verify transactions in a transparent and secure way.
- Security: Blockchain technology uses advanced cryptography to secure transactions and prevent tampering. This makes it a very secure way to store and transfer data and assets.
- Efficiency: By eliminating the need for intermediaries and streamlining processes, blockchain technology has the potential to increase efficiency and reduce costs in a variety of industries.
- Smart contracts: Blockchain technology also enables the use of smart contracts, which are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. Smart contracts can help facilitate, verify, and enforce the negotiation or performance of a contract.
The price of Ethereum has been no slouch either! When it was initially launched in 2015, Ethereum was valued under $1.00. By 2018 it had surged all the way to $1,396! Crypto is extremely volatile and cyclical so as the 2018 bear market arrived in earnest, Ethereum plunged down to as low as $80.
As the crypto bull market commenced in 2021, NFTs (non-fungible tokens) took the spotlight with popular sets like CryptoPunks and Bored Ape Yacht Club trading for tens of millions of dollars. ETH, the native token of the Ethereum blockchain, was required to buy and sell these NFTs. Also, thousands of altcoins like Shiba Inu were launched on Ethereum.
All of this activity spurred the price of Ethereum to a new all-time high of $4,800 in November, 2021. Remember, ETH was trading at under $1.00 just five years prior. Not every altcoin is going to have the price performance of Ethereum, but there are still a lot of opportunities out there.
Why Should You Invest in Crypto?
Some other reasons why you might consider investing in cryptocurrencies:
- Potential for high returns: Cryptocurrencies have the potential to deliver extremely high returns, but it is important to keep in mind that they are also highly volatile and carry significant risks. The value of cryptocurrencies can fluctuate significantly, and it is possible to lose money as well as make money when investing in them.
- Decentralization: Cryptocurrencies are decentralized, meaning they are not controlled by any government or financial institution. This can be appealing to some people who are skeptical of traditional financial systems or who value the idea of privacy and decentralization.
- Innovative technology: Cryptocurrencies are based on blockchain technology, which has the potential to revolutionize many different industries. Some people may be attracted to the innovative nature of cryptocurrencies and the potential for them to disrupt traditional financial systems.
It is important to carefully consider whether investing in cryptocurrencies is a good idea for you. Cryptocurrencies carry significant risks and are highly volatile, and it is important to thoroughly research and carefully assess the potential risks and rewards before making any investment decisions.
I do the legwork for you in my premium publication Crypto Cycle, where I manage a real money portfolio. I also steered my readers clear of the Terra Luna stablecoin collapse as well as the various crypto lending company failures such as Celsius, Blockfi, and others.
Most importantly, I kept my readers away from the FTX exchange which turned out to be a giant scam where customer deposits were used for leveraged trading and personal expenditures by employees.
Five Tips to Avoid Crypto Pitfalls
Here are a few tips to help you avoid pitfalls when investing in cryptocurrencies:
- Do your research: It is important to thoroughly research and understand the cryptocurrency you are interested in investing in. Look into the technology behind it, the team behind the project, and any potential risks or challenges.
- Diversify: Don't put all your eggs in one basket. Diversify your portfolio by investing in a range of different cryptocurrencies and assets to spread risk.
- Use a reputable exchange: Choose a reputable cryptocurrency exchange to buy and sell your digital assets. Look for an exchange that has a good reputation, is regulated, and has strong security measures in place. The collapse of FTX and the resulting fallout has highlighted the importance of this recently.
- Protect your assets: Make sure to use strong passwords and enable two-factor authentication to secure your cryptocurrency accounts. It is also a good idea to store your digital assets in a hardware wallet, which is a physical device that stores your cryptocurrencies offline and provides an additional layer of security.
- Don't get caught up in the hype: It is important to remain level-headed and not get caught up in the hype around certain cryptocurrencies. Be mindful of the potential risks and don't invest more than you can afford to lose.
It is important to keep in mind that there is no such thing as a "safe" investment, and all investments carry some level of risk. This is especially true for cryptocurrencies, which are largely speculative and are often manipulated by whales (holders of a large number of tokens).
Sidestepping Crypto Scams
Cryptocurrency scams can take many forms and can be difficult to spot. Here are a few tips to help you avoid falling victim to a cryptocurrency scam:
- Be cautious of unsolicited offers: If you receive an unsolicited offer to invest in a cryptocurrency, be wary. Scammers often use high-pressure tactics to try and get you to act quickly and may try to convince you to invest in a fake or fraudulent cryptocurrency.
- Research the project: Thoroughly research the cryptocurrency project before investing. Look into the technology behind it, the team behind the project, and any potential risks or challenges. If the project is legitimate, there should be plenty of information available about it.
- Protect your personal information: Be careful not to reveal personal information, such as your wallet address or private keys, to anyone you don't trust. I will never ask you for your private keys or passwords.
- Don't fall for unrealistic promises: Be wary of anyone promising unrealistic returns or guarantees. There is no such thing as a sure thing when it comes to investing, and if an offer seems too good to be true, it probably is.
That said, it’s not unusual to realize gains of 10x, 50x, or even 100x during crypto bull markets if one is invested in the right projects early on.
I personally had multiple +60x gains in 2021. I’m keeping a close eye out for crypto projects that will deliver similar returns over the next few years, and have created a $50,000 real money portfolio so you can mirror my trades as I make them.
I’d love for you to join me.
Editor, Daily Profit Cycle