Cryptocurrencies – Initial Thoughts

by FI Fighter on May 22, 2017

in Cryptocurrencies

This is my first post regarding cryptocurrencies, and as usual (not surprisingly, I guess), I’m a little late to the party… As readers may be well aware, the world for alternative currencies is quickly gaining traction, and the performance gains of many of these “coins” has been breathtaking so far in 2017.

Here’s a price chart of Bitcoin.

And Ethereum.

Can you say, “Holy SHEET!?!”

You know, it really wasn’t that long ago when many of us were baffled that Bitcoin had risen so swiftly that it was trading on parity to gold (1 Bitcoin = 1 ounce of gold)… Yeah, well that seems like an eternity ago now, since Bitcoin is about to go 2x the spot price of gold!

So crazy, right!?!

And what is Ethereum?

Sounds like something out of Physics 101…

Perhaps the world really is going digital/virtual, after all…

But these performance gains/returns are certainly real, and all I’ve got to say is kudos to the believers and early adopters who got into the space before Cryptocurrency Boom 1.0 took full flight…

You know as someone who is heavily (and I mean HEAVILY) invested in the precious metals space, it would be all too easy for me to rip on cryptocurrencies, a sector where I have absolutely ZERO exposure in…

But I’m not going to do that… Why sour grapes just because I was wrong and didn’t back the winning horse?

I’m sure you’ve heard all the skeptics and their reasons for scoffing at… and dismissing alt. currencies altogether by now.

  • No intrinsic value.
  • Useless if it the internet goes offline.
  • Just asking/waiting to be hacked…
  • Too many coins in circulation because too many newcomers have been (and will continue to be) creating new forms of coins, rendering the “old” stuff obsolete.
  • Etc.

It sort of makes you think back to the dawn of the internet, doesn’t it?

I mean, think about the Dot-com boom and bubble that occurred in the 1990s…

Certainly, many companies rode the wave up and ended up crashing and burning… but in spite of that, you had many survivors that emerged from the dust victorious… like Google (GOOG) and Amazon (AMZN), to name a few of the heavyweight hitters…

As it pertains to cryptocurrencies, it’s too early days to know for certain who is destined to become the next Google or Amazon…

Sure, right now it looks like Bitcoin is a slam-dunk, consensus pick… but remember Napster? Myspace? I mean seriously, just 1 year (or 1/2 a year) ago, nobody had even heard of this thing called Ethereum…

And Ripple?

WTF is that?

The list of cryptocurrencies goes on and on and on…

Here’s a Top 10 list of cryptocurrencies in circulation, sorted by market cap.

From Coin Market Cap.

But anyway, I’m convinced that some form of blockchain technology will survive and make its way to the mainstream… before long.

As investors and early FI fighters, well, bottom line is that we just want to get on the train early and make some big gains…

When it comes to making big-time money, as you all know, I believe there’s two ways to accomplish that:

  • Deep Value Investing.
  • Hyper-growth Investing.

With cryptocurrencies, obviously, we are talking about the latter here, and hyper-growth… That’s the same view I take with the clean energy metals: cobalt, lithium, graphite/graphene, etc…

For sure, there will be lots of bumps along the way… that’s what ALWAYS happens when we’re dealing with paradigm shifts, but I’m adamant that the “wave of the future” is where you wanna be… I mean, you don’t have to “back up the truck”, but I think some light exposure into emerging sectors/technology is the prudent way to go…

Imagine if you had parked even just $3,000 into AMZN or GOOG stock way back when?

With that said, I don’t think anyone should go chasing these cryptocurrencies up to the moon, either… As I learned first-hand with Lithium Boom 1.0, there will be an inevitable pullback, and we should simply use the initial hype phase to get educated on the sector… more than anything else.

So, yes, cryptocurrencies have piqued my interest, but I’m going to do my best to stay disciplined with my investing approach… As gold and silver taught me in late 2015/early 2016, your odds for success are greatly amplified when you’re targeting deep value opportunities… No, I’m not going to pile into cryptocurrencies just about now (when the hype is immense), but I will put in the time to get properly educated!

Any goldbugs reading this, yes, I can sympathize with you… and I’m sure it must be beyond frustrating to see cryptocurrencies like Bitcoin and Ethereum soaring to the moon… You must be thinking, “That’s what gold and silver ought to be doing!!!

I totally agree with that… and I can’t lie and say that all the blatant manipulation that impacts the precious metals sector on the daily doesn’t bother me at all… It most certainly does! Which is also why cryptocurrencies have so much appeal to many investors/speculators out there… Many folks are quite fed up and tired of all the endless supply of paper shorting (backed by no real physical ounces) that goes on behind the scenes with the precious metals, which ALWAYS seems to arrive on the scene without fail to cap the upside gains with gold and silver anytime the metals start to break out to the upside… For now, with cryptocurrencies, it’s a free market with real buyers and sellers; you don’t have to worry about some thief in the night swooping in and dumping $1 billion in naked paper shorts to crash prices… just cuz!

Man, how can anyone deny the appeal in being able to avoid all that CRIMEX bullshit?

If you can’t beat em… join em… Or play an entirely different game altogether!

Right now, it really feels like the sky’s the limit for these cryptocurrencies… With gold and silver, we can never get ahead of ourselves because once these precious metals go for a nice run, in the back of your mind, you’re ALWAYS anticipating and expecting the next smackdown to occur… at any moment…

Investing/speculating in precious metals feels like an uphill battle…

Ultimately, I think that over enough time (so you better learn to perfect the Art of Patience), gold and sliver will go on another bull market tear, and investors/speculators will profit handsomely… Even with that anticipated outcome, I still think there is a market for cryptocurrencies, and that this new emerging sector will also shine brightly (or brightest of them all).

If I had to pick a coin, I’m leaning towards Ethereum right now… but please keep in mind, I know essentially nothing about cryptocurrencies, and have a lot of studying to do.

Again, I should re-iterate this important thought — I don’t want to chase anything up! If I am to initiate a position, I’ll wait for any meaningful dips/pullbacks before working my way in… buying in tranches.

Also, on the flipside of all the cryptocurrency hype, I’m still quite intrigued by the deep selloff in precious metals stocks over the last few months… and my interest into mining shares hasn’t waned one bit! There are plenty of deep value opportunities available in high quality gold stocks right now, and that’s where my main focus still lies!

Anyway, congrats again to the crypto-longs who have made a fortune investing/speculating in this space so far in 2017!

The following cartoon pretty much sums up where sentiment is right now…

 

Happy Hunting!

{ 8 comments… read them below or add one }

1 FinanzrNo Gravatar May 22, 2017 at 1:27 pm

Hi Jay,

interesting post.
I have read somewhere, not so long ago (can’t remember where exactly), that bitcoins are being used by the Chinese to channel money out of the country. Also a lot of the mining is done in China, due to the cheap electricity costs (read about a bitcoin miner in one of these ghost towns, close to a hydro dam running a wildly profitable mine due to low energy costs).
So if this is the true driver behind the bitcoin run, I think we will see a deflation once/if the Chinese close the loop. But that is just my thinking – maybe Im wrong and the run will continue…
Cheers
Finanzr

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2 FI FighterNo Gravatar May 22, 2017 at 2:15 pm

Finanzr,

Yes, lots of speculation into what is going on at the moment… I am hearing the Chinese and Japanese might be involved with the price spike…

It is interesting, for sure, and worth keeping tabs of… I think you’re right on the deflation part and we will see a substantial pullback… at some point.

So, I’m just doing research now… My main focus is still on depressed gold/silver mining stocks, which offer a lot of value right now.

All the best!

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3 boonNo Gravatar May 22, 2017 at 11:54 pm

you should take a look at this site http://fiatleak.com/
it visualizes the bitcoin trade flow

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4 Oliver @ Appreneurinvestor.comNo Gravatar May 22, 2017 at 2:02 pm

a lot of crypto currency is used for the dark web. since it’s not traceable, it’s the ideal currency for a lot of shady stuff that goes on.

i bought 1 entire bitcoin back in the day on coinbase. it’s worth over $2000 today. i didn’t buy it for investment purposes tho. it was to sign up for a streaming service. when coinbase had an app update an introduced Ethereum, i sold a fraction of my bitcoin to transfer it to ethereum. i noticed they have light coin now too in the dashboard.

honestly..from my personal experience. i don’t trust the vendors. it has nothing to do with cryptocurrency itself. but the vendors have a lot of shady stuff they do. when i sold a fraction of bitcoin to transfer some back to my checking account. it disappeared into thin air. no trace to my checking account. it took over 3 weeks talking to customer support at coinbase before it was resolved and i got that money back. i can’t imagine doing this in a larger scale. i would steer clear of it. a few thousand sure, but an actual investment? no.

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5 FI FighterNo Gravatar May 22, 2017 at 3:15 pm

Oliver,

Thanks for sharing those thoughts. When it comes to investing, my own personal preference is to focus mostly on hard assets, which is why I love: real estate, physical gold and silver.

As cool as cryptos might be, they exist in the virtual world and my brain has a lot of trouble reconciling that… A small speculation is probably the extent of what I’m comfortable with, in case this this sector really continues to move hyperbolically higher…

But bottom line, I’ll always gravitate and favor the precious metals, manipulated or not… Frankly, they are just easier to understand especially for the old school folks like myself. Gold and silver are a store of economic energy and have a track record of enduring the test of time. I like those odds.

Cheers!

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6 FilippoNo Gravatar May 23, 2017 at 12:25 pm

Hi Jay,

have you make yourself an idea of mining and cloudmining? I wonder giving a try to cloudmining.

Take care,

Filippo

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7 FundamentalAnalysisNo Gravatar May 23, 2017 at 3:00 pm

Good thoughts here, I think there is a place for cryptocurrencies in the world, but for now (and that may change) its also important to have perspective on the total market size/valuation. There is no way governments would allow crypto to be accepted into mainstream not without regulation (so we know there is some sort of limit ultimately)…..however given what is happening in the world, the high debt levels, the wave of populism, the slow decay in southern europe, capital controls in china, trend towards cashless in India (a tech savvy country by the way) one could go on…..I absolutely wouldn’t bet against people rebelling/becoming fed up with the system and turning towards alt currencies like bitcoin. It becomes a self-fulfilling prophecy the more people catch on and believe the story, the more it will rise in value and actually become closer towards becoming a true alternative digital currency…..I think we are at an interesting point. I don’t think the market will accept lots of alt currencies for now, it feels like a small handful will emerge as the winners.

Here is a thought the government forcing people to pay their taxes in alt currencies, the government then controlling the supply effectively, and devaluing fiat against digital alt currencies, helping inflate away the debts. Maybe one alt currency for each country who knows too far into the future to comprehend. Just a thought experiment

By the way I’ve come across quite a few people who I wouldn’t have expected to talking about the federal reserve, I think people are slowly catching onto what is happening.

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8 Investment HuntingNo Gravatar May 28, 2017 at 12:07 pm

I regret not buying Bitcoin a few years ago. I made the same mistake last year with Etherium. I had a $5,000 order ready to go at $5 a coin but I was afraid to submit it. I believe ETH will overtake Bitcoin at some point in the future. I finally bought 20 coins last week, and I’ll be adding more on dips. Hopefully we see a big dip next week. I assume many people are and will continue selling off to capture gains.

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