Cryptocurrency is the most seductive investment is the world. People are making 1000% gains in a few months time, and some young investors are throwing everything they can save, borrow, or steal into crypto, often with incredible results. So why do I still invest in other asset classes, and why do I think you should too?
Crypto is UNQUESTIONABLY in a Bubble. (More on why I don't think this matters in a future post) We have more than 1400 tokens in the market right now. In a recent address, Binance CEO Zhao ChengPeng said that there are 5000+ projects currently trying to get on Binance. Will even 5% of these projects exist in 5 years? I seriously doubt it. Blockchain isn't the solution to every one of the world's problems, though it is the best we have for certain purposes.
The Imminent Demise of the US Dollar/Fiat is Overblown. The United States, for all its insane bullshit, is an incredibly robust nation. Our national assets approach $300 Trillion. Yes, the Dollar loses value through inflation. Yes, China may soon be the currency king if they aren't already. However, people have confidence in the dollar because they have confidence in the United States. If the Dollar truly shit the bed (which it won't anytime soon), crypto holders of international meatspace would have big problems, and cryptocurrency markets would not be immune. Digital currencies will stand alongside fiat currencies in the mainstream, medium-to-long term. This will not immediately cause fiat to cease to exist. The two economic systems are not mutually exclusive.
Do I think Crypto is going to crash tomorrow? No. Do I think we should all cash out our Doge gains and buy BRKB? No (well...). Here's how I see things going in the future, as well as how this perspective informs my investing.
Crypto continues upward trajectory far beyond $1 Trillion. Probably in 2018. We could see multiple trillions in market cap by the end of the year. This is all hinging on the premise that the major blockchains manage to scale (or are quickly replaced by scalable chains), consumer facing dapps take hold, we don't get squashed by new draconian regulations.
Crypto gets regulated sensibly. It gets integrated into more conventional markets. Medium term, this introduces much needed consumer/investor protections. Crypto becomes less distinguishable from traditional equities market, loses volatility, moon missions start to disappear.
So how do I invest as a result of this perspective?
For every $100 I invest in crypto, I put $100 into my Roth IRA. Super boring. I save a lot. When I get paid, I invest 20% first, put away 30% for taxes (I'm a freelancer, it sucks), and pay off mortgage/bills. Not that much is left over, but I don't spend much anyway. I read used books, I work on personal projects, I keep busy with several different clients. Fortunately I have a partner who also works, making this a situation I wouldn't be able to sustain otherwise without living on lentils in squalor. I realize not everyone can do this. It's just that you can't diversify your investments simply by buying a lot of different cryptos; one huge crash will bring your whole portfolio down. Put some money into conventional investments. You won't be sorry you did. You know what didn't care that crypto crashed in mid-January? My IRA.
I'm going to follow crypto obsessively for 1 more year. For me, it takes daily reading to catch opportunities, both to buy and to sell. This has resulted in incredible returns for the past year, but I don't want to live like this forever. I don't want to stare at a computer screen, digging through forums, becoming a crypto recluse. My crypto gains I wish to be a means to an end, which is a better life more connected to people, with less time working on stuff I don't care about. For better or worse, I'm unwilling to go 110% on crypto beyond 2018. I'll hold some long term investments after that point, and I'll never truly break away from the scene, but it will be much less important to me. You may plan to HODL, but please consider having a cut off date. Consider what your crypto gains, realized and unrealized, are for. You've got to keep this bigger picture in sight for all investments, not just crypto.
I imagine my various investments as different garden plots. Crypto happens to be growing by leaps and bounds recently, but this doesn't mean I don't fertilize the other ones. Use the investment savvy you've gained in crypto to become a better investor in all areas of life. This way you won't be betting your entire future success on the success of heretofore largely unproven technologies. That said, enjoy your crazy gains in 2018. I think they're right around the corner.