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Should You Invest in Crypto Now?!

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This article is more than 4 years old.

I am not a financial advisor.  Please do not use the below to make any financial decision.

I just finished reading Confessions of a Crypto Millionaire and the book made me think about cryptocurrency in a new and different way.  If, like me, you’ve been thinking that cryptocurrency is a scam that helps flash traders or drug dealers make a quick buck, you need to read about Dan Conway’s journey.

Decrypting Crypto

This memoir tells the real story of an otherwise regular guy and his unlikely escape from corporate America. Conway’s journey starts as this typically corporate employee decides to give up the grind to go ‘all-in’ on Ether, the cryptocurrency of the Ethereum blockchain which he claims is superior to the much acclaimed Bitcoin.

What makes this story interesting isn’t just that Dan ends up putting it all on the table (his house, his future and his family’s) to invest in Ether.  It is also not just simply interesting because his bet ends up working out, after many ups and downs, and he walks away pocketing millions.

What makes this story fascinating is that Dan didn’t invest in crypto solely because of the money.  He invested because he had a belief that decentralization would someday provide an alternative to the companies that now run the economy.

You might have been thinking about crypto.  Should you invest now? What are the fundamental principles that make you a “good crypto investor”? This post breaks down the reasons that could help you decide if “crypto” is for you or not.

Does fluctuation matter?! Analyze This.

Despite the sensational market swing headlines in the press, the reality is that standard markets typically only fluctuate by 1 or 2% on a daily basis.  The average investor’s portfolio rarely gets affected by such swings: most personal investors think about the market’s long term prospects.

Crypto market moves resemble the standard market, but on steroids.  Consider these stats:

Investing in crypto requires a different belief system.  Conway summarizes it best on page 211: “crypto isn’t an investment, it’s a belief system”.   And that foundation will allow you to develop a new tolerance level for “very low” lows and potentially “very high highs”.

His journey included days when he was up $1M and days when he was down $500,000 (remember that he invested EVERYTHING into crypto: his savings, his line-of-credit...etc). Even he doesn’t recommend doing that.

Everything You’ve Always Wanted to Know about Crypto...and More

To help you think through your decision to invest in Crypto (or Not), I contacted Dan Conway and asked him to give me his rules of thumbs for crypto investment.  Here they are. Again. He’s not a financial advisor. And neither am I. Don’t use the below to make investment decisions.

Don’t only listen to me (or any one person).  You shouldn’t invest a cent until you’ve spent time educating yourself on the space. Get on the web and start digging around on Twitter, Reddit and news sites like CoinDesk. Contextualize the acronyms (sounds fun!). You don’t need to learn it all, but the first step before investing your treasure is to understand the broad outlines of the crypto world, its culture, the technology and what it promises for the future. And of course, the risks. 

Pick your horses carefully. This space is filled with extremely optimistic people pitching coins that promise to revolutionize the world. Some might succeed. Most will fail. There are still many scams out there, actively stealing from people with false claims and plans to exit with investors’ funds. That said, there are many coins that are irrefutably not scams, with massive development behind them, and lots of credible people who believe in them. The massive amount of developers working on the Ethereum blockchain might be appealing for example.

A word about Market Cap. Market capitalization (or “market cap”) is not just based on the value of a single coin.  It’s also affected by the total number of coins in circulation. Only twenty one million Bitcoins will ever be created. The crypto you might own could have a circulation of 100 billion coins.  Spend enough time learning the broad parameters, so that you don’t make a rookie mistake, then pout off into the sunset when you are REKT (crypto meme indicating losing all of your money and rage quitting your Coinbase account). 

The real significance of Libra. Dan has doubts that Facebook’s proposed cryptocurrency, Libra, will ever launch. He says that his proposed architecture is an interesting mix of centralized and decentralized technologies” enough decentralization for regulators to scream bloody murder and enough centralization for crypto enthusiasts to spit on it”. He continues “really, who wants Mark Zuckerberg anywhere near their money (sorry, Zuck!)”. But, he agrees that Libra shows how far crypto has come in the ten years since Satoshi Nakamoto invented Bitcoin in 2009. He concludes: “Libra will fail, but it shows that the benefits of crypto are recognized by everyone, including the big tech incumbents like Facebook who will one day be disrupted by dApps (decentralized apps) that are controlled by the users of the service, not a few billionaires in the boardroom.”

Volatility and other horrors. “Buckle up!”, Conway warns. “Cryptocurrencies fall further than you can imagine, and then shoot up in price so fast, it’s like you are living in a dream. If this weren’t enough, security is critically important. Hacks happen. Thankfully, if you follow best practices, which can be easily found easily on dozens of respected sites, you will be OK. But let’s face it, it’s a little scary to know that you are responsible for your own coins if you choose to keep them yourself”

Over time, as custody solutions mature, bigger institutions and more retail investors add this emerging asset to their portfolios, the volatility and danger of holding crypto will lessen. But ultimately crypto might still be too much for you and every reader will have to figure it out for him or herself.