I’ve been asked over and over lately, “What should I invest in when it comes to Crypto?” so I thought I’d write a blog which might be helpful, rather than me explaining over and over to different people.
First of all, understand that investing in anything is risky and your investments can go down as well as up. Which brings me straight to my other point! When you ask me for financial advice, I understand that you are asking in the hope of receiving an expert opinion, but the truth is that nobody knows what the future holds and it is impossible to suggest what you should invest your money in–it’s not my place to do this, it’s your money and your risk, so, as any ethical person will tell you, do your own research.
The big problem with anyone else telling you what you should invest in is that they don’t understand your personal financial circumstances, they don’t know what your risk appetite is either. Let me explain risk versus reward so you can better understand this concept.
It is important to realise that any investment has inherent risk and can go down as well as up! Only invest what you can afford to lose. Tolerance for risk versus reward is a personal choice that only you can determine. For someone who is not at all risk-averse, my investments reveal I’m actually far more concerned about the RISK/REWARD Tradeoff than people who actually are risk-averse without understanding why they’re risk-averse because they tend to focus solely on the risk part of the equation. I have a keen eye on both risk and reward and am then able to understand risk better. What may be seen as riskier behaviour, may in fact turn out to be more informed behaviour.
If you take a risk, a risk-averse observer would see it as very risky, a risk not worth taking. There’s always an inherent risk. There is risk in action and risk in inaction, this means that not doing anything also entails risk. When we focus on the risk-aversion, we are only considering half the equation. Higher risk demands higher reward, this is known in economic circles as Jensen’s inequality. First, you must determine if you’re risk-averse, risk-neutral, or risk-happy. For risk-averse people, taking high risks can make them unhappy, and minimising risk would make them happy, psychologically speaking(not results).
Here’s a test to determine which you are:
To determine which risk category you fall into, choose A or B.
A. $70 paid now for doing nothing.
B. 70% chance to win $100 with a chance of losing 30%.
If you like ‘A’ you’re risk-averse. If you’re not bothered, then you are risk-neutral and if you like ‘B’ you’re a risk-happy person.
The “Expected value” of ‘B’ is 0.7*$100+0.3*$0=$70, the same as option ‘A’.
In economics and finance, risk aversion is the tendency of people to prefer outcomes with low uncertainty to those outcomes with high uncertainty, even if the average outcome of the latter is equal to or higher in monetary value than the more certain outcome.
The above example is just a crude way to determine your risk category. If you want to dive deeper, you can determine your precise risk aversion using things like Utility Function and Arrow-Pratt Measure. It’s all very interesting stuff! Here’s an example if you want to blow your mind with maths! We’re just keeping it simple in this blog post, though.
Okay, so hopefully you’ve determined if you’re a crazy risk-taker or a more conservative risk-taker by now. So, let me explain to you about the Crypto Industry and layout your options as I see them.
Firsly, I’ve already written about cryptocurrencies in this other blogpost and you should read it to give you a better understanding of what they are and why they’re beneficial, rather than me rehashing the basics. Click this link to read the first two sections on what are cryptocurrencies and why are cryptocurrencies so popular. https://middleeastinvesting.com/cryptocurrencies-make-access-to-your-money-easier/
The article link above will also walk you through how to purchase your first cryptocurrencies and start trading them if that is what you are interested in doing.
So, let’s get back to this article and the points I wanted to make to the people asking me for help.
Bitcoin was the first Cryptocurrency of its kind and is the leading Cryptocurrency by far! As of writing this the value for one Bitcoin stands at $56,700.00 for one Bitcoin. One Bitcoin is divisible by 8 decimal places, so you most certainly don’t need to buy a whole Bitcoin to invest! The smallest unit of Bitcoin is called a Satoshi, named after the mysterious and unknown creator of Bitcoin, going under the pseudonym Satoshi Nakamoto. 0.0000001 Bitcoin is equal to 1 Satoshi and you can purchase 50,000 Satoshis for around £20.00GBP based on current prices.
If you remember we discussed risk attitudes earlier in this article. When someone asks me what they should invest in I always recoil in horror because it is entirely up to you what you invest in.
Let me explain, there are other cryptocurrencies than just Bitcoin, around 10,000 of them and they’re known as Altcoins (alternative coins). Some of these coins are great and stand on their own merit and provide value through providing some kind of utility, such as in-game tokens, etc. Other coins are trying to decentralise traditional finance and could do very well in the future, these coins are known as DeFi (decentralised finance). You can check out my other website http://www.defiheadlines.com to read about some of these projects. The point is that there are thousands of such projects and some are just outright scams and others are serious projects, but there is still no guarantee that they’ll be successful.
I invest in several of these projects and Bitcoin, but I use trading bots to make money regardless of if the prices go up and down. Unless you are investing tens of thousands of pounds these bots wouldn’t be worth you looking into because the licence fees are more than your profit would be.
So, here’s my advice to you as I see it. You can invest in Bitcoin and wait for the price to go up, which is a rather safe option given how far Bitcoin has come to going mainstream with major companies recently buying into it. Economists have predicted Bitcoin could go as high as $1 Million dollars in the future, but Bitcoin is known to have violent swings up and down due to it being a thinly traded market with a market cap of $1 Trillion, which causes volatility (this is will calm down as the market cap rises). So, this is a long-term investment and whatever you put into it, you should be thinking in terms of years and not months before you take any money out of your investment
I say Bitcoin is the conservative option because if it does reach $1 Million, that is a 20x increase from what the price is now. If you only had 50,000 sats at a cost of £20.00 GBP, you’d end up with £400 GBP, or £380 GBP profit from your initial investment.
However, if you decided to look into some of the various Altcoins and decided to build a portfolio of these Altcoins, although the risk is greater the reward could also be far greater. Some Altcoin projects have been know to increase 1,000x before crashing back down or retaining their value. Say if one of these Altcoins that you own ended up doing a 1,000x increase and you had invested £20.00 GBP, that initial investment would be worth £20,000 GBP! Tempting for a risk-happy person, but don’t forget that many of these 10,000 projects will eventually go to zero and some will no doubt survive and be successful. It is akin to gambling in a lotto really and this is why no ethical person will recommend that you buy a certain altcoin over another, unless they have a vested interest and aren’t ethical at all.
So, it may seem like I’m being harsh when I say I don’t give financial investment advice, but I’m actually doing you a favour by not recommending anything. If you want to gain knowledge on why to invest in certain things here’s the way I would think about it.
First of all, I would visit a website called http://www.coingecko.com where they list all of the Altcoins. I would then start by researching a few of these coins by seeing if they are listed on any exchanges where you can buy and sell them(this means they have a market and are liquid). I would also check to see if the code is open source (meaning anyone can review the code) as opposed to closed source. I would then check on http://www.github.com to see if there is active development taking place recently. Github is a code repository that developers use to list their project’s computer code. I would then try to find out what kind of community support the project has by checking social media sites, discords, etc. I would also try to find out if the project is decentralised or does it have middlemen who control outcomes. Is there a cap on the number of coins that can be minted? Finally, what problem is this coin trying to solve?
If all of the above checked out, I would then start looking at the current price and price history. I would set up a free trading view account at http://www.tradingview.com and start examining the trading charts to see if the price is relatively high or low compared to its historical prices. Below are screenshots of Tradingview showing Bitcoin charts on hourly candles, daily candles and monthly candles.
As you can see, the charts look very different but are in fact all charts of the same cryptocurrency, but based on different time periods. By zooming out to the monthly chart, you can see that Bitcoin is very high relative to its previous months, but if you were looking at the hourly candle it looks like Bitcoin is falling, which it is, but only a tiny amount relative to the history of Bitcoin’s previous prices.
Looking at these charts will open up the world of trading to you and you can even learn how to study the patterns on these charts to help you be a better trader. Here’s a link to http://www.investopedia.com that tells you all about price analysis.
Okay, so now you’ve done all of your research and you are ready to start investing, I would highly recommend you read my article I posted at the start of this blog post to find out how to sign up to the World’s leading cryptocurrency exchange, Binance. I’ll leave the link here for you again https://middleeastinvesting.com/cryptocurrencies-make-access-to-your-money-easier/ Once you’ve signed up to Binance you can start buying the cryptocurrencies that you’re interested in. Good luck and happy investing.
If you still have any questions, please don’t hesitate to ask.