I know this post is going to lots of Steemians, but frankly I'm writing this specifically for my real life friends and family. I'll be sharing it in an email soon. You're welcome to read my letter to my family.
3 Sentence Summary
Consider making 10-20% of your investment portfolio cryptos and do it within the next few weeks. Start by putting a few hundred dollars in as a starting point as soon as possible as a way to get comfortable. I think tidal wave two is within the next month or two so you don't have infinite time to doddle.
A note
The point of this is that I think this may be one of the most unprecedented buying opportunities for an investment in my lifetime and I want my friends and family to consider taking a shot at it. There are incredible opportunities here, but it also isn't easy and there is risk. Depending on your risk profile and depending on your current life status this may or may not be a good fit for you.
To be extremely clear this may or may not be right for everyone or all walks of life. These are my perspectives for my family based on having been deeply involved for a year and I'm trying to share this industry as a passionate educator because that's just who I am and I'm proud to be that. This may not be a good fit for you and your family depending on your current financial situation. You need to take ownership of your own decisions. I'll try to talk about risks, challenges, and downside as well. I'm extremely bullish for this year, but it's not without risk!!!
Hey guys
I have been in crypto for a year and a half. I've only been a real investor in this space for a few months, but I've been active in a crypto community since August of 2016. So far I think I've had a pretty spectacular run. I've personally invested $5,000 into crypto and a few thousand into tech as a starting investment. The total value of my crypto portfolio is just shy of half a million dollars and I've pulled $20,000 out for expenses. I don't think everyone will be able to take the same pathway I did, but there are elements to this that I think are repeatable that will still have massive financial implications. Most of my returns have happened in the last 4 months.
So, my point today is to draw you into a conversation to give you a few charts and tell you a story. Armed with some stats and knowledge that I think the story point towards an unparalleled possibility for investors. I also think it has some real risks and isn't for everyone. This is meant to inform you and implore you to explore this area. I'm not telling you to buy because I don't know your circumstances well enough to make that call.
I'm not sure it's advice... I'm doing my best to share why I'm such a passionate advocate, why I have an extremely bullish outlook, and I've been in sales for years. It's hard for this not to sound like a pitch, but everyone has to make financial decisions for themselves. There are also risks. While some might think technology and fraud are the biggest I actually think the biggest risk is YOU the investor.
You're the biggest risk
Below I'll go into why I'm extremely bullish on crypto, but for just a second here's one of the biggest draw backs. This place is insanely volatile, but it didn't work the way I thought it did. The meteoric new highs are exuberantly fast, and the corrections are agonizingly slow. The dot com bubble took years. The correction took years. Here we call that February. I think the biggest risk is that as a new investor in the space you're captivated and sucked in by the highs and can't sell or worse buy more, and when the lows come you panic/freak out and sell low. It might be best if you buy some and set it aside for a few years, but if you can stomach looking at the charts there's absolute fortunes to be made in crypto.
Scaling is the next biggest risk
The speed with which people are entering the market is exploding the space. There are some options that can scale now that I'll talk about later, but some of the major coins are already at max technical capacity (for right this moment). I think there's a real chance some of the coins won't keep up with the growth. Mitigating that risk while the space grows is an absolute challenge. With that growth so comes new devs. I'm hopeful if we through enough code monkeys working on the the problems they'll get it right, but there's a risk that some coins and chains will outright fail under the weight of growth.
Fraud
Crypto is still the wild west. It's intentionally hard to regulate. You can't rely on a central authority to necessarily save you if you're cheated. I recently lost $2,000 on a coin that pulled the plug. That happens. I think standard discernment is important and you're gonna have to sniff out bullshit just like any other market where people to try to make a buck. That said the safety net isn't here to the same extent. So, you have to take full ownership of the choices you make.
Where you are in life
Markets can stay in downturns longer than you can stay afloat. I think we're going to see 10X returns this year on the major coins and 100X or more on many of the alt-coins. That said there's a good chance you're not going to time the market perfectly and that they'll go down before they go up. Stocks might dip 5%. Crypto calls that Tuesday morning. This correction is a 35% dip right now off of highs and probably has one more lower low to go before it springs back up.
We are at 12k btc today. I think it'll hit 15ish and then hit 8k before bouncing back up hard. If you don't ladder in at the right time you could see a drop before you see a rise. Don't invest any money that you might need to get back quickly because it could force you sell at a really shitty market time.
Those are real risks, here are the rewards
Here are thoughts on why I think crypto is an amazing opportunity for me and my family. I welcome and encourage you to wrap that up into a lot of other perspectives before you actually do anything. I do think we have a fairly narrow time to get into one of the biggest tidal waves of investment. You missed out on block chain tech reaching what I'll call level 1. We'll still be here for level 2 and 3. This is about how comfortable you are taking risks, which usually is how well you understand something. I'm here to educate you so you can make an educated chioce on what you want to do with your investment portfolio.
Again, take ownership of your own finances and see if this is a good fit. I'm not a registered financial guy. I don't know if this is a good fit for you and if the risk profile is going to be worth the upside potential. It's there for me, but you have to find out if it is for you.
Cryptocurrencies and block chain technology are going to explode
A year ago people would say $20,000 per bitcoin is unimaginable. A year from now we'll be dreaming of how inexpensive that looks. In my vision of the future every website has a checkout option of credit card, paypal, and crypto. You can't do this just yet, but it's not long into the future before I can pay my mortgage, utilities, and lunch with crypto currencies. I'll buy my next house with it. We're going to mainstream so hard it'll cause whiplash. In the process a tsunami of money is going to enter into the space and it'll make people who are early investors very wealthy.
I think the early investor bus is going to leave the station soon. There will continue to be great opportunities, but I think what we are going to see this year will be unprecedented... even for cryptos!
What is a cryptocurrency and what is block chain
These are two words that describe the same thing. These terms are describing public ledgers that record all the data and share it across a wide list of people. Aggroed sends 15 sbd to ausbitbank. Mary sends 10 steem to Jim. Those are transactions that are stored in a big file and that file keeps growing. Every chain is different but on steem we wait three seconds and take a snapshot of the new transactions and store that into a new chunk of data saved as a "block" and then those blocks are hooked into the chain ready for the next block.
One way to think of this is create an excel file. Rather than saving the whole file every 3 seconds simply save what changes were made over the last 3 seconds. Those changes files should then be small. If you play those files back in a row like a movie you can see how the excel file changed over time and get caught up. That's essentially what block chain tech is.
Cryptocurrency describes the same thing, but puts the emphasis on a different aspect of how it all works. At first I thought crypto was meaning something sinister when I first landed here, but it really just refers to the algorithm of how blocks are created and stored. What you want is trust that the data is true and no can modify them. If I can make a block or change a block to randomly say aggroed recieves 10,000,000 SBD then the whole thing will have a lot of problems. So, to fight that programmers included cryptography into the tools so that bad actors were thwarted.
People are flocking to blockchains!
When bitcoin hit $20,000 per bitcoin there were reports of crypto exchanges, places where you can exchange one crypto for another (like a stock exchange) and sometimes for fiat curencies, signing up 100,000 people per day! The next wave of investor, adopter, and developer is coming here right now in a tidal wave. JPM has it's own chain. The banks put together Ripple as a group chain. Institutional money is already entering the space, but it's not long before pension funds are taking a position as a standard operating procedure.
It's slowed down some since there has been a price correction, but the funny thing about corrections is that it gives people an opportunity to buy in and in many ways we're expanding our base through the correction. Let's talk about why that matters.
What gives currency value?
8 months ago I put out an economics post. That was at the very start of my witness campaign. Folks ended up electing me on the Steem blockchain to help build this blockchain, which I do through a server that I run! The main thrust of that paper and what I'm discussing today is that the value of a currency is the number of people using and accepting that currency. Here's how I get there. (For savvy readers there's some stuff about SBDs I've changed some of my views on since I first started this, but that's secondary to the info on big picture economics which haven't changed).
Value of the currency is proportional to all the goods and services this kind of thing is straight out of a textbook
Figuring out goods and services in an economy is really freaking hard. Figuring it out in a decentralized economy tied to other decentralized economies in a global manner is basically impossible.
A really good proxy for all that trade though is the number of people in the economy. People is much easier to calculate and estimate. I also trust it since it's people are doing the buying, selling, manufacturing, and services. Number of people are a really good approximation for amount of goods and services in an economy. Yes if I'm comparing a highly industrialized nation to an impoverished agricultural country it's not a perfect tool, but cryptos are a global phenomenon and thus that should mostly level out.
Value of the currency is proportional to the number of people in the economy
PEOPLE ARE THE VALUE!!!
So, if people are the value and we're seeing them sign up in droves that gives me a lot of faith that we're going to sky rocket as an industry. There's an economics "law" that also indicates this. The law defines it more mathematically than I have. It's Metcalfe's law and has shown to work for fax machines, telephones, and facebook. It states the the value of a network is proportional to the square of the number of people in the network. Here's a chart of bitcoin moving along the anticipated pace dictated by Metcalfe's law. That little regression number up in the top left shows for the tracked portion of this graph that there is a 98%+ correlation to the value of bitcoin to Metcalfe's law. We're still right on track.
People are the value. PEOPLE ARE THE VALUE!!! People are coming in droves. The value is going to increase by a metric fuckton!!!!
Why do people want cryptocurrencies?
The trick is not to look at this in isolation, but looking at it from the perspective of what's the delta between the options?
If we're considering government issued currencies then cryptocurrencies have a huge number of advantages. For starters let's look at the Federal Reserve, which is a private bank whose leaders have gone on record before Congress stating they are above the law and who operate the current money system. They print $160MUSD a day right now. During the financial crisis in 2008 they printed $16T and handed it out to banks and actually mostly foreign banks. Since the central bank has started our nation's money has lost 99% of it's value. As a result of these economic conditions if you have $10,000 in a bank account today you will be able to purchase fewer goods and services with it next year because it will continue to decline in value. Cash since the inception of the Federal Reserve has been a horrible store of wealth.
Other options exist too. You can buy stocks, commodities, and real estate, but it's hard to find good deals. Much of these markets are extremely manipulated. The libor scandel showed basically trillions of dollars in loans were manipulated by all of the major banks acting in collusion. High Frequency Trading has showed that financial firms are manipulating prices before you're able to get them. Real estate is going ballistic, but a lot of it appears to be driven by overseas investors using the properties as a way to launder money out of the country and it's creating unrealistic prices for properties.
Essentially people buying cryptos are looking at other options and ultimately deciding that they aren't trustworthy investments and we'll see that they under perform cryptos on top of that.
So, what's good about a crypto?
Clear and transparent rules about how the blockchain operates. The software is opensource. That's one of the reasons so many people can create new chains (there are over 700 cryptocurrencies now), but it's also a major reason why people trust it. You can go onto a public code repository, download software, check out the software, possibly add changes to the public software if you're inclined, and then run the wallet, miner, or program and trust it's the same thing everyone else is using with the same rules as everyone else.
Devs from all over the world will look at the code and make sure it's doing what the various white papers, a document describing how they function, say it's going to do. The code for the currencies can be checked for truthfulness. The amount of fraud for the blockchain code itself is incredibly low because the code is publicly scrutinized and the algorithms are designed to stop any kind of theft or hijacking.
There's no central authority that can just print 16T more tokens on a day without an act of congress. The amount of coins in cirucation and the printing authority is distributed. The threat of individuals inflating the coin at the expense of everyone else outside of the pre-set rules of the game is practically non-existant.
Releasing new coins and rules of the game
Blockchains have a set schedules for how they release new coins and to whom. This is mostly commonly done by mining. People purchase equipment to solve a complicated math problem and if they are the ones to solve it coins are released to them. How many coins and the rate of inflation can be determined by the rules in the code for the blockchain. So everyone knows how much is coming and when.
The benefit to this system is that no central authority can up and decide to print 16T tokens cause (insert selfish rational here)!!!
You know the schedule, all the users agree on the schedule, no one has a right to print more (unless it's in the rules), and it's up to the rules of the blockchain to distribute them. The power of money creation is no longer isolated into the hands of greedy bankers, but now decentralized to everyone in the world that wants to run the programs!
The power of deflation
While many of the cryptocurrencies are technically inflationary the number of coins created is so small relative to what government fiat ("fiat" described below) currencies choose to mint that they are essentially deflationary. Most of the currency wars in government fiat are a race to who can print the most! Most of the currency wars in cryptoland are who has the least inflation!
Part of the reason the coins gain so much value is that deflationary currencies tend to go up in value. That's a self fulfilling prophecy too, but ultimately if you know you can buy more goods and services with a currency if you have it and sit on it for a year then you are inclined to own and keep it. It keeps supply lower, which increases price. Practically all the cryptocurrencies are deflationary compared to government money and so they are highly attractive when comparing basically any crypto to any government "fiat" currency.
(Fiat generally implies that it's backed by nothing. The USD was on the gold standard up until the 70s when Nixon Nixxed it. Until then you could take money to a bank and exchange it for gold. It was gold backed. Now you can't make that exchange. Since on paper it isn't backed by any asset anymore it's called fiat. What gives it value? The number of people in the world that accept it as a medium of exchange, and it's defacto backed by petroluem and the US military.)
Borders
Crypto is international in scope. People in every single country use it. I can choose to send currency to any single person on the planet. I click some buttons and boom. Value is sent. Some cryptos take a few hours to clear. Some take a few seconds. It's drastically faster than modern banking software, and many coins have eliminated fees and middlemen. I also don't have to check in with a central authority to do this. I'm not waiting for someone else to approve my transaction. If I want to trade I do it. Many people are attracted to how liberating that is.
Security
If you don't own the keys it isn't yours. With cryptos you get a set of keys. The world saw in cyprus how banks can give accounts a hair cut and do "bail ins" and set negative interest rates and a million other things to steal your money. If they don't have the keys they can't take what's yours! (You can lose keys and lose money. Exchanges also don't give you keys and may get hacked so there's risk there too.)
It's the delta!
USD- slow to move, highly inflationary, privately controlled, privately issued.
Crypto- instant to hours to move, deflationary, publicly controlled, opensource, publicly issued, decentralized
Why now?
Cryptocurrency trading is highly volatile and mounds of money are moving around. For a stock trader used to 10-15% as big changes in a year it's hard to comprehend the violent 80% swings that bitcoin has gone through or the 10-150X swings that the alt-coins have gone through (there are over 700 cryptocurrencies now. Bitcoin is the main one that still has 30% market share, but many other coins exist collectively known as alt-coins).
Bitcoin is currently correcting from the first major wave of unprecedented investment. When that correction completes I believe, but can't prove that we are likely on another metioric rise that puts the 20k btc to shame and leaves everyone shaking their head. Everyone shaking their heads except for the people who have been in crypto for a while and know it's coming.
Scope of the crypto market
Don't take it from me. Take it from Mike Novogratz a billionaire investor with 20% of his personal assets in cryptocurrencies.
Takeaway- Dot Com was 6-7T and only located in the USA. Blockchain is global and only 500B. We have room to grow.
Some thoughts on how to be a good investor in the space and what trading looks like.
A 40 min interview with a well informed skeptic.
Criteria for picking winners and a good portfolio
I'm not advocating that you take all your money and put it into crypto. That's actually pretty dangerous. I am suggesting that you have a balanced portfolio and consider crypto another asset class to put in it. Own cash, stock, real estate and crypto. I think crypto should be 10-20% of many people's savings and investments. This may be higher if you're young and have a safety net of some sort.
I don't think you can reallly go wrong picking bitcoin or ethereum. I think they are trusted and proven assets that large investors will purchase and hold. I think they make good investments, but I don't think they'll be the final winners, but as far as crypto goes they are probably the safest investments.
Scaling is the future
I think and it was nice to hear that billionaire reaffirm this thought that the biggest issue is going to be scaling. Lemme use some round numbers. I think within the next 9-15 months we're going to reach $100k btc. That puts bitcoin at a valuation worth 1/4 of the value of gold as a store of wealth. That doesn't seem unreal to me. In order to get there we have to go from bitcoin around $10k to bitcoin around $100k. That's a 10X change, and according to Metcalfe's law which I think there's evidence we're following that means we have to grow by 10^2 or 100x people in the network. What that means is that I need a chain that can scale and it has to be able to scale in 2018.
There are going to be more winners than what I'm going to put here, but I'm invested in and think highly of a class of coin's I like to call "Dan Coins." These are all coins built by a guy by the name of Dan Larimer who's a freaking programming genius and has a team of really freaking good devs (some of whom I've worked with personally).
There's a website called blocktivity.info. It tracks the current value of a coin, which is generally thought of as the market cap and can be determined by looking at the total coins and multiplying by the value of each one. Then it looks at how much activity is on the block and how many transactions it can handle. Lasty it makes a ratio of block activity versus marketcap, normalizes it to a value of 1 for bitcoin and then starts comparing coins. High values are undervalued. Low numbers are overvalued.
All the coins that can scale are Dan coins. These are powered by a blockchain methodology call DPoS or Delegated Proof of Stake. They are lightening fast, scale exceptionally well, have zero or near zero fees, and use almost zero electricity (unlike Proof of Work, PoS, coins that use 20% of world electricity).
I think I'd include cardano in here too that is using a hybrid approach.
So I like Steem, BTS, EOS, and Cardano for 2018. There's others... but as a class I like DPoS coins.
It's all about people
@penguinpablo tracks weekly users:
Alexa ranking show's steemit.com at position 504 in the United States (we broke 500 and then it backed off a bit as price went down. We'll be in the top 400 after the correction is over).
and lastly I run a group for new users on the platform. We started from scratch on June 1st 2017. We're at over 9000 people.
@discordiant keeps good stats on how we've been growing:
I think value is proportional to people, and I see herds of people joining. It's not just my group or steem. This is a global tide of people moving towards decentralized cryptocurrencies to solve whatever they can think to solve this way.
Conclusion
Crypto has amazing opportunities. You need to get informed and then consider it having a home in your portfolio. You probably can't go wrong with Ethereum and bitcoin, but I think the future is in DPoS coins and second generation technologies that can scale. There are more than I have mentioned, but those are ones I'm confidant in.
This space is risky and extremely volitile. It's not a good fit for everyone. I have money to invest and I'm comfortable in this space. I have more than 20% of my assets in here, and I'm not sure I can recommend that. However, crypto is an expanding space and an unparalled global tidal wave. Please consider what I've shared as you take ownership of your own investments and consider choosing on your own to make an investment into crypto.
Disclaimer: The point is to educate yourself, take a baby nibble to try it out, and then make up your own mind with your own due diligence to figure out what to do.
PS I'm gonna work on a post of how to logistically get a little money into the system in short order.
PPS Here's a CNBC analyst-
