There’s a saying that during a gold rush, you want to be the one selling pickaxes. This year, everyone is hot on cryptocurrency and blockchain, though few understand what these platforms are really doing. So, here’s a breakdown on the opportunities and the pitfalls, and ways that anyone can profit. Understand that there are more than a few risks associated with investing in the next hot thing, and, therefore, you should be using fun money, not your retirement.
6 Ways to Play Cryptocurrency and Blockchain.
And here is more information on each point.
1. Cryptocurrency as Currency.
In December of 2017, Bitcoin was trading at $20,000/coin. By June 15, 2018, it was down to just $6,514. Similar losses were seen in Bitcoin Cash, Ethereum and Litecoin. You can’t have a currency that is worth $20,000 one day and $6,500 the next. Avoid using cryptocurrency to buy or sell things. In 2018, over 85% of the transactions were speculative trading, not currency usage. Also, if you see a new cryptocurrency being launched, then you have to do a forensic analysis of the individuals behind the currency before you believe the sales pitch. Scams abound in this space. Shysters are on fire creating MLMs and “philanthropic” or utopian crypto worlds that are really just their own get-rich-quick on your dime nefarious underworlds.
2. Trading Cryptocurrency.
On June 21, 2017, Ethereum experienced a flash crash, dropping from $318/coin to 10 cents in a matter of minutes. This was sparked when a seller attempted to dump multi millions of Ethereum at once, and then cascaded into chaos with a mass of stop loss sell orders. There are two lessons to be learned here. One is to have a “capture gains” strategy rather than a “stop loss” strategy. When markets are this volatile, capturing gains can mean winning and increasing your wealth frequently with a “trade around the core” strategy, whereas stop losses lock in losses every time there is volatility (which is ongoing in crypto these days).
The other lesson is that you can place ridiculously low limit orders that might actually work out for you. It was reported that there was a buy order for Ethereum at 10 cents that GDAX (the leading cryptocurrency exchange) honored. Wow. Ethereum was back to over $300/coin within days, and is currently still at $490/coin (as of June 15, 2018). It was also reported that no one could sell at the high of $20,000/Bitcoin – that the site crashed. The volatility is extreme!
Coinbase and GDAX (owned by Coinbase) have solid leadership and boards, if you are looking for a reputable company for your crypto wallet and for your trading. Coinbase has hired CFO Alesia Haas, formerly CFO of Oz Management (a global hedge fund). This prepares the way for an IPO (but doesn’t guarantee it). Coinbase is a company that investors should keep an eye on.
3. Selling the PickAxes.
There are a lot of MLM schemes posing as pickaxes of the cryptocurrency and blockchain opportunities. I get emails almost daily asking me to double-check on this or that amazing, once-in-a-lifetime, act NOW! ruse. Not even one has turned out to be legitimate. Buyer beware!
So what are the pickaxes of blockchain and crypto?
4. Peripheral Industries.
Mining crypto takes a treasure trove of energy. So, you could make a case for data storage or energy companies as benefitting. Nvidia has exploded in share price, under the halo of crypto (and other tech products), and is part of the FAANNG super group (with Facebook, Amazon, Apple, Netflix and Google). Nvidia has 34% profit margins and year-over-year sales growth of 65.6%! However, the share price reflects this popularity, and is trading at an all-time high.
Coinbase is not yet publicly traded, but could be soon. Marathon Patent Group (NASDAQ: MARA), a potential Coinbase competitor, has $91.7 million in accumulated deficits, interim C-level management, only $5 million (or less) cash on hand and might not make it through the next quarter without restructuring. This means that even investing now, at an all-time low, might result in losing everything. Marathon will have to raise a substantial amount of capital to continue operating. They should report their 2nd quarter 2018 earnings around August 21, 2018.
Articles list dozens of cryptocurrency plays. However, the majority of those companies listed in the articles are cash-negative micro caps that are trading off the boards, where pump and dump schemes abound.
5. Blockchain Technology.
A lot of bulletin boards and stock newsletters are using the word block chain as bait to lure you into a subscription. The truth is that the biggest developers of blockchain are IBM and the banking industry, alongside a few entrepreneurial startups that are not yet publicly traded. This space is worth monitoring. However, again, here is another place where shysters, scams and newsletter opportunists abound more than opportunity... There is no clear winner here yet.
6. Disruptive Innovations. There are typically two cycles to disruptive innovations. The first wave is one where there are a slew of companies competing to have the best new technology and industrial game-changer, and even more wannabes and fakers who are capitalizing on the buzz words and taking people to the cleaners. After the bubble pops, usually due to too much speculative spending on R&D without enough sales and revenue, the industry experiences consolidation, where only the best survive. The next phase, one of mass adoption and more affordable pricing, produces a far more prolonged rally. We saw this in the Dot Com bubble and bust in 2000, which fell again in the Great Recession (due to market forces more than industrial disruption), and are currently experiencing the fever of FAANNG. So, even if you are able to find a company to capitalize on in crypto or blockchain, be careful that you are not caught up in the first, very reliable correction between the early innovation phase (bubble/crash) and the mass adoption (more extended) profitable cycle. Read Peter Schumpeter’s Capitalism, Socialism and Democracy for more information on disruptive innovations theory.
So far, Nvidia and Coinbase are the best bets in cryptocurrency. However, Nvidia’s price is very high, and Coinbase is not yet publicly traded. Steer clear of get-rich-quick schemes as these are often marketing ruses to allow insiders to pocket profits at your expense.
Other Cryptocurrency Blogs to Read
Chain Split Disruption
The Bitcoin Cash Hard Fork
The Ethereum Flash Crash
If you are interested in learning how to invest in cryptocurrency, emerging markets (like cannabis), hot stocks and more, then join me at an upcoming Investor Educational Retreat. Call 310-430-2397 to learn more. Register by June 30, 2018, and you will receive the lowest price and a complimentary 50-minute private prosperity coaching session (value $300).
Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She blogs on Huffington Post and Medium, and is a frequent guest contributor to national news shows and magazines. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.