Weekly Wednesday Crypto Episode 1 – Blockchain Investment Strategy
This is the first official episode of my new weekly series on blockchain; this episode is about blockchain investment strategy. This is a show for people who already have some familiarity with the technology and market of blockchain who are interested in hearing some brief philosophical analyses about the space on a weekly basis.
Summary of this Episode
When determining the blockchain investment strategy in a particular cryptocurrency or blockchain project, there are three fundamental questions that you should ask:
- Does this project have a profitable real-world application?
- Does this project have a realistic chance of achieving that real-world application?
- Is this the right time to buy?
Does this Project Have a Profitable Real-World Application?
In order to answer this question, you have to apply a theory of value. This means you have to think deeply about what people value and why. This is a massively complex field of study all unto itself, and I won’t attempt to address that here. But, when forming a blockchain investment strategy, you need to have a well-formed opinion about this; and you must leverage that in your decision-making process. You then have to evaluate whether what this project creates or contributes to meets some legitimate value proposition. Furthermore, you must evaluate whether this project meets that need in a way that other projects do not; or whether this project at least has some significant advantage over its competitors.
Does this Project Have a Realistic Chance of Achieving that Real-World Application?
If we have answered in the positive the first question, we then proceed to the next. That is: how likely is it that this project will actualize its value proposition? There are many things to consider when considering this question. For example, are their goals inherently realistic? Do the people working on the project have the necessary experience and expertise to tackle the problem they are attempting to address? Have they formed partnerships with other market players who will help them make their vision a reality? Can they communicate their value to their target end user and achieve adoption? Do they have a sustainable business plan? Are they putting themselves at odds with regulators; if so, will the regulators be able to stifle the project? The more of these kinds of questions that you can answer in the positive, the more likely it is that the project has real potential.
Is this the Right Time to Buy?
If we have answered the previous two questions in the positive, then it is fair to say that the project has an excellent chance of success and is worth considering in the context of your overall blockchain investment strategy. Now, you must consider whether this is the right time to commit financial resources to the project. At this time, the blockchain space is still highly volatile. That means that you can expect the price of any given project (with the possible exception of Bitcoin) to rise and fall with significant monthly margins (in excess of 10%, monthly).
Anytime you see a given project rise in value sharply, you should consider whether “Fear of Missing Out” (FOMO) is taking place. Do not fall victim to the FOMO effect! Even if the project is promising, it is much better to allow FOMO to take its course and let the token price crash before buying in. For example, in 2017, Bitcoin’s price rose to $20,000 from $900. A lot of this price movement was driven by FOMO. People thought Bitcoin was on the verge of taking over the world, and they wanted to get in before it was too late. Now, I believe, as strongly as anyone, that crypto is the future. But this is something that takes time.
Maximize Your Profits
In 2018, Bitcoin’s price fell back down to $5800 and stabilized around $6500. Let’s say Bitcoin stabilizes at $1,000,000 by the end of 2020, which is what Tech Guru and blockchain enthusiast John McAfee predicts. From that perspective, buying Bitcoin at $20,000 is a sound decision, because if you hold it until then, you will see a 5000% return on your investment. But what if you had waited until Bitcoin stabilized at $6500? Well, then you could have bought three times as much for the same price, and have seen in excess of a 15000% return. This same principle applies to all other projects. When you see a coin that passes the muster of the first two questions rise sharply, wait for FOMO to run its course and buy the dip.
This post is for academic and entertainment purposes only. It is not financial advice. All cryptocurrency investments are highly risky. Always do your own research, and never invest more than you can afford to lose.