Investing into crypto – Why?
In our previous article, we stripped crypto/digital assets back to the very fundamentals. The basics. Hopefully, you can now at least ‘pretend’ like you understand this space when sipping a martini with friends, or frying bangers on the barbie with some mates! Don’t worry though – We are ALL learning!
In this article, we want to put forward some arguments as to the ‘why’ around investing into the crypto space. We also want to be very transparent and upfront about the risks, and what to expect in this asset class. I always say to clients: “Protecting your wealth is as important as growing it!”. In other words: Risk Management/Mitigation.
Really, the aim of this article is to show in no uncertain terms, that you are not late to this party! In fact, you are arriving at this party when most people are still at home, showering up and beautifying themselves. You could say, you are an ‘early adopter’ in a lot of ways!
Let’s get into it!..
Perhaps one of the strongest arguments for investing in crypto, besides the ‘use-case’ of effectively replacing a local currency, or as a store of wealth, is the adoption we are seeing on a worldwide scale.
A lot of the experts out there compare the adoption of crypto (as in, how many people are piling into this space) to the adoption of the internet of the 90s and beyond.
They do this because this is perhaps the most recent life-changing technology to hit the world. But, more importantly, we see amazing similarities in the numbers of uptake.
You know and understand the internet well. In fact, this new world of crypto is often referred to as ‘Web3.0’. Meaning, that it’s the next revolution of the internet age.
1990’s
In the 90s, we were fascinated by Web1.0! You could search up almost anything, and be brought to a selection of ‘brochure’ type websites. You could read what was on offer, but not much more than that.
Then, along came email! We started to use the internet to communicate with each other… The term ‘e-commerce’ was birthed, and lo-and-behold, we could buy stuff off the internet! Wow!
That eventually evolved into the ‘internet of things’, whereby you could remotely control devices like your heat pump at home for example. Or switch on lights, see who is at your front door and open your gate, all from the deck of your bach in Pauanui!
Then – And not that long ago – We saw the ability to use the amazing networks that the internet provides, to move into ‘online money’ or ‘internet money’. Real-world solutions through blockchain technology. And, as we’ve spoken about previously if those networks are large enough, we have security, we have an immutable space, we have something that can’t be defrauded.
Just a side note – I am mainly referring in this article to Web3.0 ‘s relationship to currency, or store of value, and how this applies to an investment opportunity. Rest assured, there are MANY other use-cases for Web3.0.
Now that we have that fundamental understanding of the evolution of the internet, let’s take a look at its adoption around the globe as the 90s moved into the 2000s and beyond. And, of course, how that compares to the worldwide uptake of cryptos. This is truly mind-blowing stuff.
2000’s
In 1995 there were about 23,000 websites. Fast forward to 2018, there were now well over 1.5 billion. That’s a growth rate of over 62% per annum, compounding! Today, we are just shy of 2 Billion websites…
Personalising this – You can most likely cast your own mind back to when you first created your very own email address. You can most likely remember the first time you ‘went on the internet’ – even where you were – and what you searched up… Just think – how far have we all come from that time? Everyone is on the internet now right? Everyone has an email address now right?
So, why are we talking about the internet’s adoption rate?
Well, superimpose it over the adoption/uptake of crypto, and we are seeing history repeat itself. And, this is where you can start to understand the analogy of arriving at the party early.
Experts have done these exact comparisons. They have seen that crypto is following that same crazy upswing in adoption that the internet had, and this is not slowing down.
There are somewhere between 200 to 300 million crypto users today, or about 2.5% – 4% of the world’s population. With this trajectory carrying through, there will be 1 billion easily by 2026. In fact, Crypto.com predicts users will hit the 1 billion mark before the end of 2022! Just insane amounts of growth.
I like to think and explain things in a very easy-to-understand language. It doesn’t take a rocket scientist to understand what the above will mean to the price of Bitcoin for example. This is purely economics 101. This is supply and demand doing its thing.
It is impossible to predict, but there are many strong cases put forward out there that one Bitcoin could be worth upwards of USD$10M over the next decade or so (remember from my last article that one Bitcoin is divisible into 100 million increments, so you won’t need USD$10M to get in!). On this note, I watched a very interesting YouTube clip that took the average of many of the price predictions that are out there. The gentleman who put that video together, based on the variance of predictions, settled on a conservative average value of a USD$1M Bitcoin by the year 2030.
Bitcoin value
The current Bitcoin value at the time of writing is USD$20K….. Think about that….
As I write this, I find myself getting increasingly excited as to where this space is likely to go, and the unbelievably strong argument that backs that up.
But – And this is a BIG BUT – You simply MUST understand the risks and how volatile this space is, if you want to invest. Whenever I, or most crypto enthusiasts out there, comment on investing into crypto, we have ‘LRAC’ weighing heavily on our minds….
Long Range Arse Covering….
So, we’ll say things like: “This isn’t financial advice”. “Only invest what you’re prepared to lose”. “There’s a 99% chance this will go up, but still that 1% that it will collapse”. “Invest only up to 3% of your nest-egg into crypto”. I agree with those statements.
Investing in crypto with the following key sets of advice:
1. Invest only what you can afford to lose.
Dollar-cost-averaging is wise. This means drip-feeding your investment. Have a weekly, fortnightly, or monthly amount you are (very) comfortable investing.
2. Be prepared for massive volatility.
The price will fluctuate up and down. Sometimes violently. This is normal. Be prepared for it! In fact, try to look at the price as little as possible. This year has seen a huge fall in the value of Crypto for example.
3. Hold! Or, as they say in this industry: HODL – ‘Hold on for dear life’!
My advice is, whatever you invest in, don’t expect to look at it again until 2030 or beyond. This is a long-term investment. It is not speculative. It is not ‘get-rich-quick’. I am not interested in, nor recommending trading in crypto.
4. Stick to the big players!
This is SOOOOO important. Once you get into crypto, every man and his dog will attempt to persuade you that this or that will be the next big thing, and you need to get in. Don’t! Have a small bag of the main players. Those who have been around the longest and have a proven track record and network. Like Bitcoin for example. It is highly likely and expected that most Cryptos will be extinct in the not-too-distant-future and that there will end up being 5-10 key players (this is crazy to think about when there are literally thousands of Cryptos right now).
This article was written to help give you some of the ‘why’ behind investing in crypto. Hopefully, you are beginning to see the amazing potential for growth that is certainly coming.
In the next article, we will uncover the ‘how’! How do I invest? It’s easier than you think!
Daniel Carney
Financial Adviser
Goodlife Financial Advice