I believe cryptocurrencies are here to stay and evolve. For a long time, I denied it. I was missing the point of having a digital currency. I didn't understand why we needed cryptocurrencies. The enlightening moment came after I finally understood the blockchain technology and its usages. With this new paradigm in mind, I started to read everything I could and, of course, to invest in cryptocurrencies. Hence, after trading for many years on the stock market, I migrate my strategy to the crypto market. In this article I will present some of my steps. Hopefully, it will help other investors, too. Of course there are many ways to invest, you must find the one you prefer and feel comfortable with.
Before you put a cent in a cryptocurrency, you need to check its blockchain technology. Not the hype, not the name, not the numbers of emoji rockets in a title. For me, the cryptocurrency is just the digital asset that allows me to invest in the underlying technology (blockchain). I consider the cryptocurrency as a stock and the blockchain as the company that provides the stock.
Therefore, before investing my hard-earned cash in a digital currency, I do some research about the status of the blockchain, what are the potential usages for it? Is it being currently used? Who is behind the technology? What did the developers/team accomplished in the past? What are their skills? Etc. I put myself in the position of a Venture Capitalist (VC) who wants to invest in a new company. As a real VC, I may miss some amazing profits. Nevertheless, I will certainly avoid seeing a lot of my cash disappearing in thin air. Fortunately for me, I lost money in the past by following the hype. I didn't take a step back to understand where I was putting my savings. The losses of the past made me a more experienced investor.
Here is a quick summary of some of my main steps in deciding where to invest my money:
- Assess the technology behind the cryptocurrency.
- Assess the founder skills (pre-work, experience, etc.)
- Assess the potential adoption by companies of their blockchain.
- Read their white papers.
- Their current usage (prototype, in use, who is using)
- You can add more bullet points here, but the above are fundamental for my strategy.
As I said before, I see each cryptocurrency as a stock from a company (here blockchain technology). Such as the dotcom bubble that burst and literally killed hundreds of "companies", I foresee the same event in the crypto-market. From all the current cryptos, a couple will strive, survive, grow and take market share. Others will disappear or will be like small caps waiting to shine one day. Many others will be abandoned by their teams of developers who will end up working under another banner.
Nobody, really knows what will happen in the future. Hence, you should invest some time to study the blockchain technology to understand its market and its competitors. Before following the "experts" and emoji rockets, study and question what you read/watch. At the end make your own decision based on your studies. At least if you lose, you knew it could happen and if you were smart, you didn't put everything you owned and now are broken. The important thing here is to keep investing and to stay alive (not broken). Therefore, you must take calculated risks. The idea that everybody will have a Lamborghini in the garage and a private jet if they just "hodl" for ever is just a nice fantasy. Yes, you must have big dreams (I have them too), but it is important to remember that in order for you to make money, someone else is losing money. You will lose money! So be smart, avoid big losses and keep investing. :)