Let me guess, you’ve seen the news headlines about snot nosed teenagers becoming overnight millionaires buzzing around in Lamborghinis playing some online monopoly game with make believe unicorn dollars. To you it seems too good to be true, it must be some type of cypherpunk scam to trick the older generations and less tech savvy into an online pyramid scheme. After all,what’s wrong with the U.S. Dollar, right? Why would an alternate online currency not backed by any government, tangible asset, or central banking authority succeed?
Well in comes Bitcoin! The granddaddy of all cryptocurrencies. Invented in 2009 by an anonymous figure named Satoshi Nakamoto intended to do just that, alleviate societies economic dependency on the behind the curtain activities of banking cartels run by the wealthiest global elites. But let’s stop right there. The purpose of this blog post isn’t to convince you whether or not Satoshi’s vision of a decentralized currency has any legs. Rather, it’s to help introduce you to the speculative ecosystem Bitcoin and the other 2000+ cryptocurrencies have created. Just like you have the opportunity to speculate and invest in the future of America’s biggest businesses on the New York Stock Exchange, there exists a similar opportunity in the cryptocurrency space.
To understand where to begin first you must know the risks of getting involved in the space. Unlike the traditional stock market,the crypto market is largely unregulated by any U.S. government agency. This means scams and theft are more likely to occur due to minimal oversight on market participation. Also, the total market cap which represents the total amount of money invested into the market is much smaller than traditional equities markets resulting in wild volatility. A stock investor considers a 15% annual gain a monumental accomplishment, in cryptoland, 15% gains and losses can happen in a matter of minutes. During the peak of bull markets, it’s not uncommon to see individual cryptocurrencies rise in value by triple digit percentages on a daily basis. Knowing this, cryptocurrencies pose to be one of the riskiest asset classes available today, but on the flipside have the greatest potential for reward.
Feeling comfortable with the risk to reward reality of investing in the cryptocurrency space? Excellent, now then the next step is simple, buy some Bitcoin. Sounds like a giant leap to take. Investing in something without understanding what you’re buying. But take it from me, based on my personal experience, there is no better way to push yourself to learn about something than having some skin in the game. I’m not suggesting you dump your entire load into Bitcoin right off the bat. In fact, one of the first golden principles of investing I want you to take from this article is to only put in what you’re willing to lose. Basically, think of your money as already lost once you make the purchase. Say given your current financial situation, if $500 were to vanish from your bank account and this news doesn’t get your blood pressure off track a few points, you’re in the clear, so start with that. The biggest mistake a beginner trader or investor can make is allowing their emotions guide their decision making. To prevent this from happening, an emotional separation must be made between the investor and the money on the table. If this $500 loss were to have any negative impact on your quality of living such as taking away from rent or mortgage payments, then you’re not in a position to take such financial risks.
When first getting started there is no better choice than Bitcoin since the entire market is dependent on its performance. Think of it as purchasing an ETF for the cryptocurrency sector as a whole. If Bitcoin goes down so will every other altcoin in the market, if Bitcoin is thriving and rising in value then so will the market follow. Investing in any of the other cryptos that exist doesn’t guarantee the same protection. In fact, every altcoin in the market is coupled to the value of Bitcoin, similar to how a stock’s value is coupled to the U.S. Dollar.
Once Bitcoin is officially part of your investment portfolio, you will have an incentive to watch and monitor its daily movements. You will naturally begin seeking updates about Bitcoin’s development progress and overall news updates about its adoption in the real world. All of this knowledge is essential to developing what we seasoned investors like to call “fundamental” information that can be used to analyze an asset’s value. Once you’ve mastered how to develop this fundamental analysis of Bitcoin, the same thought process can be used on any other asset in the crypto space to make a judgement call on its potential value. In future blog articles I will try my best to disseminate my own methods for sourcing good material to obtain this knowledge. For now, to simplify things, USE GOOGLE! I know, shocking right? Treat your crypto research like you would anything else you’ve gained interest in. Go down the rabbit hole searching till your hearts content and your brain is pouring out Satoshi juice. As soon as you start seeing green and red candle sticks in your dreams, you’ll know you’re on the path to glory.
In Part 2 we will learn avenues to go about purchasing Bitcoin safely, as well as going through methods of protecting your virtual assets once they've been purchased. In Part 3 I will be going over what attributes to look out for when deciding to invest in the altcoin market as well as share more general investment philosophy to avoid any fatal mistakes.