The Rise of Cryptocurrencies

It seems like every month the stock market is reaching new highs. Stock investors like myself have benefited greatly from theΒ second longest bull run in history. πŸ™‚ But it’s becoming very difficult to find value in traditional asset classes such as stocks, bonds, and real estate. So I’ve been looking at cryptocurrencies recently. As with any potential asset class my goal is to measure the future potential benefits of an investment and compare it with the risks.

Anyone can create a cryptocurrency as long as there’s a community backing it. That’s why there are over 1,000 digital currencies in the world today. According to Coin Market Cap, the 3 most popular ones are Bitcoin, Ethereum, and Ripple, in order of market capitalization. There are many smart people supporting these digital currencies built on blockchains, which is essentially a public record of transactions. For example I’ve been following investor Brock Pierce on Twitter. He used to be a child actor in many Disney movies lol, but what Brock Pierce is doing today is very promising for the cryptocurrency market. According to his crunchbase profile, he’s been in the venture capital space for over a decade now and is trying to make Bitcoins more mainstream. In an interview last month with The Guardian, he predicts that the “underlying technology of blockchain is going to impact our world more than the internet has.” And he’s not alone. Patrick Byrne, the CEO of e-commerce giant overstock.com, firmly believes that Wall Street will be forced to accept Bitcoin technology faster than most people think. Byrne’s company was the first major retailer to accept bitcoin as payment starting in 2014, long before competitors like Microsoft and Dell.

One major barrier to entry with bitcoin has been the lack of acceptance among merchants. From a consumer point of view, there’s not much point in holding an asset that hardly anyone recognizes. But if cryptocurrencies really catch on with mainstream consumers then now may be a good time to buy and hold some digital coins for diversification purposes. The price of bitcoin has risen 500% in the last 12 months, according to coindesk. And the price of Ethereum has gone up over 2500%. Wow! πŸ™‚ I don’t have any digital currencies yet but I’m tempted to put a small amount of money into either Bitcoin or Ethereum and hold it for the long term. One problem is that buying cryptocurrency can be difficult for Canadians. Both the established banking system as well as the government really don’t like blockchain technology because it’s decentralized and not easy to tax or control.

For anyone interested to gain exposure to the price of bitcoin without actually buying any, there’s a fund for that. πŸ™‚ Investor Barry Silbert has been one of the most active angel investors in Bitcoin. He has funded over 40 bitcoin-related startups such as BitGo, BitPay, Coinbase, Gyft, Kraken, and TradeBlock. He also launched the Bitcoin Investment Trust, which is publicly traded under the symbol GBTC in the United States. This trust solely invests in and derives value from the price of bitcoin. This gives investors the chance to benefit from bitcoin price movement through a traditional investment vehicle, without the hassle of buying, storing, and safekeeping bitcoins. But personally I would rather own a digital currency directly so not to pay management fees, especially when I plan to hold for a long time.

When it comes to investing in alternative asset classes, it’s worth looking at digital currencies. I don’t intend on investing in Bitcoins right now. I will continue to do more research on it first. Even if I decide to purchase some in the near future I will keep my cryptocurrency exposure to less than 1% of my net worth. Bitcoin may outperform stocks over the next 10 years, but it also carries a lot of liquidity and volatility risk.

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Random Useless Fact

Potato chip bags are not full of air, but of nitrogen gas. This is done to prevent the chips from oxidizing and going stale in the bag.

 

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Miguel @ The Rich Miser
08/10/2017 4:21 pm

I’m still on the fence on cryptocurrencies. Given that, unlike stocks, they confer no ownership in a company and don’t pay dividends, investing in them seems like an exercise in “greater fool than I” thinking (I’ll sell it at a higher price than I bought it because a “greater fool than I” will buy it). That said, I’m still intrigued and have heard that Ethereum is technologically superior to Bitcoin. Are you leaning towards it, or Bitcoin?

JoeBB
JoeBB
08/11/2017 7:41 am

The only way CC’s are gong to become mainstream is if wall street and the government can control it, until then it’s just wishful thinking. When it’s controllable then it will no longer be what it is today but just another currency. This is purely a speculative investment, like the tulip mania and we know how that turned out.

al
al
08/12/2017 2:07 am

I put $500 in Bitcoin and $500 in Ethereum, not directly but by buying some through a broker called eToro, which propose cfd instruments that track the things 1/1. I do not plan to ever sell, have a stop loss in place at 99% and a take profit in place at 10 000% and am curious to see how it will pan out. The fact that most well off people miss (the ones living in “free societies”), is that a lot of people aren’t living in free societies, where they are constrained by a lot of blockages from the people that control them. Just ask any average Chinese if he can invest in overseas property (answer today 2017:no), or how much cash he can transfer each year overseas through his Chinese bank (answer $ 50k) before being put in jail for trespassing the new laws. And don’t get me started on Venezuela or Argentina (e.g.), where they even didn’t allow currency exchange, and resulting in people losing all their savings through hyperinflation, because gold wasn’t available locally to swap the worthless paper bills, and the only outlet was bitcoin and co, for the ones who still had access to a… Read more Β»

Mike Chorney
Mike Chorney
08/12/2017 7:33 am

It’s probably worth mention that GBTC constantly trades at a near 100% premium to its underlying NAV.

Calgary
Calgary
08/12/2017 8:08 am

If after all these years of crypto currencies being around us, Liquid is finally thinking of buying some, top must be near! Sell into strength πŸ™‚

HandyThought
HandyThought
08/13/2017 4:44 am

One speculates, rather than invests, in cryptocurrencies.

BeSmartRich
08/13/2017 8:10 am

No more speculation for me. πŸ™‚ I am sticking to good old fashioned GARP investing.

jaakko
jaakko
08/13/2017 10:32 am

I’m getting sick and tired of people “stating” that this is the second longest bull market.

Wake up! We just had a bear market which started in mid-2015 and ended in Jan 2016. Just look at MSCI World.

Besides at least my portfolio is down by 5% since ATH in 19 of June this year.

Paul Jones
Paul Jones
08/13/2017 2:30 pm

Coinbase is the easiest way for Canadians to invest in crypto currently, with quick set-up and id validation. They do have weekly limits though, but you can open multiple accounts, if needed. I have tried CanadianBitcoins before, but they charge a $300 spread which is insane and too much for me.

TheBrain
TheBrain
08/16/2017 6:13 pm

If you have a computer with a relatively powerful GPU available, you can actually mine crypto-currency for the cost of the electricity it takes to run the system. I have been testing this with a gaming computer that mostly stays idle during the day otherwise, and I’d consider it a minor success. In about a month, I’ve collected 0.3 ETH.

TheBrain
TheBrain
08/21/2017 12:56 pm

The GPU I use is the GTX 1070 from NVIDIA (mainly because I already owned it), and it uses 0.15kWH max, and I average about 30MH/s hashrate while mining Ethereum. The rest of the system, possibly adds another 0.1kWH, but that is always on for me, so I don’t count it.

If you’re going to buy a GPU specifically for Ethereum mining, I’ve heard the sweet spot is the RX 480 or RX 580 cards from AMD. They are supposed to provide a better ratio of hashrate to power usage and price, but I’ve not used them myself.

sherry @ save. spend. splurge.
08/27/2017 1:13 pm

Came at the same time I was thinking about investing in cryptocurrencies. Already got started, and invested a little under $1000. May write about it if anyone is interested…

robin
robin
02/15/2021 5:34 am

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