Cryptocurrencies: Time for a Look Under the Engine

The Psychology of Cryptocurrency Investing

I, from time to time, give investment thoughts and perspectives (not recommendations) with an eye towards better understanding the psychology involved.  Since Bitcoin and Ether are the next big thing I thought I would spend a little time on them, trying to put it in perspective.

Bitcoin and Ether are both coins, but they are not tangible. They are instead digital and as such are both more secure and safe (if you take necessary precautions), and they cannot be controlled by centralized power brokers the way countries can control their own currency. Bitcoin has been around the longest, and while it suffered a long drought in it’s early days, it is now getting wide acceptance, especially internationally. People from Japan, Korea, China, and other countries are enamored with it, and it has been on a roll. Bitcoins are also becoming more widely accepted at the retail level.

Ether costs a lot less per coin, but it has been rising (and falling) even faster than Bitcoin. While it has not been around long (2015) it is more useful than bitcoin, because software can be developed with it that makes the new economy sing. I will leave a discussion of blockchains to a later article.

People who are buying digital currency are usually buying them either because they understand the ideas behind it, or because they have heard someone say how much money they made in the past few months. For many, it is more of a gamble than an investment. If you try to catch a wave (buy low and sell high) you will likely suffer the same fate others do in the stock market getting it wrong more often than not. It is best to buy for the long run, planning to hold your coins for several years, adding to it on a regular basis, say once a month or once a quarter.

If you want to speculate, so you can begin to make big money (it would still require a fair amount of knowledge), you would do best to diversify – either by owning a fund that invests in a variety of alternative currencies (altcoins) or by buying ¬†(for very small amounts) several start ups. These currency equivalents of the IPO (Initial Public Offerings in stocks) are ICO’s (Initial Coin Offerings). You can buy in at the start of companies or projects, all of whom are on the cutting edge of the new economy. If you do some research, your odds may be quite good that one or more of these ICO’s will reward you handsomely for your diligence, again only if you hold them for long enough to wait out the variance.