How to Invest in Cryptocurrency?

Dear Reader,

How to invest in cryptocurrency? There are basically two ways. One direct through the investments in cryptocurrency via a brokerage company like Robinhood or Coinbase or indirect by buying listed company stocks that have a direct or indirect crypto business like Robinhood, Coinbase or AMD.

Investing directly in cryptocurrencies is actually two tiered approach. You can invest in the main, most popular and liquid cryptocurrencies like Bitcoin, Ethereum, Litecoin or Ripple or one can invest in more obscure, less popular and less liquid cryptocurrency tokens usually based on companies' projects. Investing in liquid cryptocurrencies like Bitcoin is profitable, but with significantly less growth potential than ploughing money in more obscure cryptocurrencies. Less liquid cryptocurrencies, however, carry more risk of losing 30 %, 50 % or even 100 % of ones' initial money investment.

The second most popular and now indirect way is to invest in soon to be public companies like Robinhood or Coinbase, the revenue stream of which is largely based on business derived from the cryptocurrency market. Actually, Robinhood and Coinbase are not public yet, but in several months they will be. An even more indirect way to play crypto is to invest in personal computers and chip manufacturers or software makers like AMD, Intel, Microsoft, Nvidia etc. They have less direct exposure to cryptocurrencies, though. So the potential profit from such investments is less.

A third way to play cryptocurrencies is via investing in nonpublic companies. This type of investing carries high risks as well.

Cryptocurrencies, actually, have two main usages. Some cryptocurrencies like Bitcoin and Ethereum provide payments infrastructure and serve as pillars for the whole cryptocurrencies market. Others like Telegram and other companies' cryptocurrencies are based on a company's projects and are more akin to commons stocks in the sense they depend indirectly on a company's future revenue stream. That said, all kinds of cryptocurrencies are not part of a company's capital structure like bonds or common stocks. Or with other words they are not entitled to proceeds from the remaining assets if a company falls into insolvency. That is the main reason why cryptocurrencies investing is much riskier that investing in bonds or common stocks even. Another risk factor for cryptocurrencies is the still vague regulatory framework. There is still the binary risk that cryptocurrencies could be outright banned from governments. However, I believe the risk of cryptocurrencies being outlawed diminishes with every day cryptocurrencies exist and the more they enter our lives.

Large global banks like Goldman Sachs, JP Morgan are contemplating and taking strides of adopting the cryptocurrency business into their main business lines. Large institutions like asset managers and hedge funds have also started investing in cryptocurrencies which decreased the price volatility of Bitcoin, at least.

Yes, Warren Buffett and other value investors have expressed skepticism towards cryptocurrencies. Value investing, however, can bring not more than 10 % a year investment growth in even the best of its years measured by popular value investing indices. Yes, the risk of losing large part of your money is low with value investing, but so is the profit potential. Cryptocurrencies investing, on the other hand can make one multiples on the initial investment in a very short period of time.

Now the market capitalization of the whole cryptocurrencies market is around 1 trillion USD. I forecast the cryptocurrencies market capitalization could reach something like 250 trillion USD in the long run, barring a shock event. World's GDP is around 80 trillion USD. Cryptocurrencies, however, are a sort of money turnover or at least facilitate the exchange of money, so it is natural to expect the size of the cryptocurrency market will exceed world's GDP.

Another utility factor of cryptocurrencies is the blockchain technology that is based on the hashing tree algorithm. This decentralized ledger could disrupt many industries and improve our everyday quality of life by creating efficiencies for businesses like banking, real estate or cloud computing services.

In short, if cryptocurrencies are not banned from governments, cryptocurrencies investing holds huge potential of future value creation.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich