Cryptocurrency markets have been insane. 2017 saw the market cap of all cryptocurrencies go from less than $10 billion to more than $300 billion. People I’ve barely spoken to in years are sending me emails asking about cryptocurrencies and ICOs I’ve never even heard of. Even my dad asked me how to buy bitcoin.
Is it bubbly? Yes. Will 2018 be crazier than 2017? Yes. Will it be more lucrative? I think so.
The biggest mistake
Almost everyone looking to get into cryptocurrency today feels like they have missed the boat. Bitcoin exploded, yes. So what’s the next bitcoin? Oh look, Ethereum and Litecoin are for sale in my Coinbase account…and they’re cheaper! See you at $10k, suckers!
DO NOT BE THAT GUY
Please. Please don’t do this. If you don’t have time to read this article, or you have found yourself exhibiting the behavior described above — do this rightnow:
- Use my Coinbase referral link to set up a Coinbase account (we’ll both make $10 when you buy $100)
- Buy $100 of Bitcoin. Advanced: use www.shapeshift.io and the Bitcoin.com wallet to convert $50 into Bitcoin Cash.
- Send me a thank you email in 2020
For those of you who want to know why, great question. Let’s discuss.
The biggest myth in cryptocurrencies: “small-cap altcoins offer the highest returns.” Yes, the highest returns are available in some small cap altcoins…to a small subset of lucky traders who buy at exactly the right time and sell at exactly the right time. In stocks, these are called “insider traders.” If you are one of those, you don’t need my blog.
We have a survivorship bias because we hear more about these people than those who lost everything.
Yes, bitcoin has had phenomenal returns and is always due for a correction. It was only $5.5k a mere 17 days ago…now over $10k, after “crashing” from $11.5k to $8.9k.
I think the best risk adjusted returns in crypto today are (1) Bitcoin Cash BCH and (2) Monero XMR. Why do I recommend bitcoin? Because if you are just getting started, this is the easiest on ramp. It’s also the easiest on ramp for everybody else.
The bull case for bitcoin in 2018
You’ve probably heard of the Swiss Franc. It’s a trusted international currency. The ‘market cap’ of the Swiss Frank is about $1 trillion USD. The Swiss Franc has about 8 million ‘users’ (Swiss people).
Coinbase has more than 13 million accounts. The market cap of all bitcoin is $170 billion.
Charles Schwab has 10 million brokerage accounts. The market cap of the equities in those accounts is about $3 trillion.
Coinbase just launched a Custodian product targeted at institutional investors. They are charging $100k to set it up, minimum $10 million dollars AUM to start, and 10 basis points a month. Do you think Coinbase made those prices up? No. They know there is demand. What will that demand do to the price?
Wait, what about Bitcoin Cash and Monero?
Bitcoin has been lauded as a store of value. It’s been that, kind of, so far. However transaction fees are high and climbing, and the scaling roadmap has made it abundantly clear that they (the code maintainers currently influential in BTC development) see this as a feature instead of a bug. Bitcoin Cash is a fork that is empirically testing whether or not the risks of large blocks and low fees were overblown or politically motivated chimeras.
You can read about all the hate on twitter for Bitcoin Cash and come to your own conclusions of what that means.
A compelling case can be made for Bitcoin Cash to outpace Bitcoin even in market cap terms. But it doesn’t even need to do that to be a good investment.
As for Monero…it’s still massively undervalued as the best and longest-serving privacy coin.
If you want to get into crypto, go to www.coinmarketcap.com and study the top 10 market cap coins. They all got there for a reason. Crypto is about network effects and effectively serving market niches in digital scarcity. That’s not to say there won’t be currency wars, propaganda, tribes, and litecoin millionaires made by “hey it’s cheaper” thinking.
The size of the pie is huge. The top 10 cryptos are going to take most of that pie due to network effects, empirically vetted code, and interested institutional investors.
Speculate on small cap alts and ICOs if you want. But the bulk of your crypto portfolio should be large cap.
I would recommend: 40% Bitcoin BTC, 40% Bitcoin Cash BCH, 15% Monero XMR, 5% knock yourself out if you must, but probably better to put this into Bitcoin Cash or Monero.
If I left a bunch of questions un-answered, please leave them in the comments. I’ve been fielding lots of emails from new users and I thought it was important to get something — anything — out for a start 🙂
At the time of this post, 1 Bitcoin traded for $9,897.50 on Coinbase and 1 Bitcoin Cash traded for $1,300.30 on Kraken.