November 7, 2021
Cryptocurrencies: Daily Update
The hot commodity around the world right now is cryptocurrencies, and it just so happens that they aren't all too different from classic commodities.
Bitcoin is often compared to gold because of its use as a store-of-value and the currency's deflationary nature.
Another big similarity between Bitcoin and Gold is that they both get more difficult to mine the longer time goes on, as there is not an infinite supply of either resource.
As modern technologies developed and humans became more efficient at mining gold, we realized the reality of scarcity very quickly.
Nobody could get their hands on enough gold, no matter how much they had to risk to get it.
The 1850's saw people from all over the settled United States dropping everything and packing up to move to a foreign place all for the hopes of making unimaginable riches during the California Gold Rush.
Ironically, more money would be made by those that developed the gold mining industry than those that were mining the gold themselves. The best investment wasn't in the scarce commodity, but in the technology and industry that supported it.
A similar phenomena took place in the late 1990's during the dot.com boom.
With the benefit of hindsight, we can safely say that the technology companies that worked to create a global technological infrastructure would have been a significantly better bet than trying to pick a winner out of hundreds of companies' that had the sole aim of existing as an internet company.
An example here would be investing in Apple, IBM, or Microsoft rather than Napster, AOL or Pets.com.
Now, how does this same phenomena apply to cryptocurrencies?
Well, these days the news and social media are filled with stories of amateur traders making 10x or even 100x profits on cryptocurrencies and cryptocurrency companies that you've never even heard of!
It can be shocking to see 18 year old traders on Robinhood getting better annual returns than their parents' money managers, but it's happening, and it’s an indication of a financial paradigm shift.
Old money is now trying to figure out how to play a young money game.
So how can you get in on monumental profits without having to overexpose yourself? Play the long game!
Instead of throwing your nest egg at a random cryptocurrency that sounds like it has potential, maybe you invest in Nvidia. Instead of buying an NFT, you can invest in a metaverse company like Facebook.
This isn't to say that you shouldn't take risks and trade speculative opportunities in this rapidly evolving space, you just need to know about all the different types of opportunities that there are!
Personal discipline, risk management and a bit of skepticism appear to be the formula for developing a strong trading strategy in the cryptocurrency space.
Instead of digging for gold, consider history’s valuable lesson of investing in the guy that's selling the shovels.
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