How to Analyze Cryptocurrencies Investments?

Dear Reader,

Investing in Bitcoin and other cryptocurrencies has gotten quite popular of late. Many both retail and institutional investors that previously invested in stocks are now investing in Bitcoin and other cryptocurrencies.

Basically, there are two ways to analyze cryptocurrency investments.

The first approach is what I would call the macro approach. It involves forecasting the future adoption of mainly Bitcoin, but also other cryptocurrencies as money or longer said as a means of exchange, unit of account and store of value. This depends a lot on people psychology including the benevolence of central banks and other regulators toward the asset class.

The second approach I would call a micro approach. It involves analyzing the financial statements, respectively financial results of companies that issue cryptocurrencies, or cryptocurrency tokens. The logic is as follows: if a company does well, increases profit, grows sales, its projects have higher future value and the cryptocurrency token issued in connection with these projects becomes more valuable and its price increases. This approach is almost 100 % identical to analyzing a company public stock's price prospects. That is why the majority of cryptocurrencies investors have previously traded stocks.

Actually the macro approach influences the micro approach and vice versa. The adoption of Bitcoin as money helps increase both the issuance and value of cryptocurrency tokens. The proliferation of cryptocurrency tokens helps people decide to use Bitcoin as money.

One has to always bear in mind, though, that Bitcoin and other cryptocurrencies are a new asset class. And as every new asset class Bitcoin and other cryptocurrencies have relatively low liquidity and exhibit large price swings or with other word are quite risky to invest in. Only recently Bitcoin's price fell by circa 50 % from its recent peak.

Actually, at the moment the macro approach, or the general adoption of Bitcoin and other cryptocurrencies as money, is the stronger driving factor of Bitcoin. In the 2015-2017 period it was more the micro factor, cryptocurrencies issuance, the main factor driving the price of Bitcoin and other cryptocurrencies up.

Actually, the principle is the same as with television advertisements or news. If a product, like Bitcoin, gets show often on the media or is often in the news, it gets bought. Or in the case of Bitcoin and other cryptocurrencies, their prices go up as more and more as they people become interested in the subject and buy in into the cryptocurrencies asset class.

I am of the opinion that the future of Bitcoin and other cryptocurrencies is bright. Bitcoin and other cryptocurrencies create value for people by serving as a means of exchange, unit of account and store of value. Thus they save people time, money and effort. If global central banks do not decide concertedly on a global effort to outlaw cryptocurrencies, Bitcoin and other cryptocurrencies will slowly proliferate. Bitcoin will even become a global reserve currency, a small enhancement to the USD as the now global reserve currency.

Actually, a lot depends on people's psychology. If one correctly forecasts the neural answer of humanity to cryptocurrencies he or she would be able to prognosticate the future prices of this exciting new financial asset class.

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