Investing in Bitcoin and Other Cryptocurrencies

Bitcoin's resilience proves remarkable and every day the cryptocurrency exists and stores value increases its chances of becoming store of value, unit of account and means of exchange or with other words money.

Recently Bitcoin's price fell to 30 000 USD from 54 000 USD but now Bitcoin's price has recovered to above 43 000 USD.

All this speaks to the remarkable investing interest in Bitcoin. More and more hedge funds have electronic money invested in Bitcoin. Some mainstay asset managers are also dabbling in the cryptocurrency. Word is making the rounds of individual investors getting extremely rich from investing in Bitcoin which begets even higher numbers of individual investors investing in Bitcoin and other cryptocurrencies.

Bitcoin is the first real financial asset class developed in decades. Money is the pinnacle of the capitalist system, which basically now governs the whole world. And Bitcoin is enhanced money in purely electronic form. What is more, Bitcoin is based on a simple, yet revolutionary hashing blockchain algorithm that provides independence. And freedom. And freedom is actually the base of capitalism.

Investing in Bitcoin is fraught with risks, though. Bitcoin's price is extremely volatile as the last couple of months have shown, but so are technology stocks which regularly fall 20 % -30 % after a quarterly earning report below expectations. Actually, in two words, Bitcoin is technology money. 

The nascent cryptocurrencies asset class still in a way depends on central banks. If central banks start to wage a war on cryptocurrencies, regulators will of course loose out in the end, but such a conflict will severely slow down Bitcoin's adoption. Global progress cannot be stopped, but it can be slowed down.

The next wave of cryptocurrencies adoption should actually be a new higher wave of minting cryptocurrencies by companies. Yes, now there is still early stage venture capital that fills that financing void for start up companies, but seed and early stage venture capital money still comes with a lot of preset conditions. Cryptocurrencies, on the other hand, provide a higher degree of freedom for small and medium sized companies, which are the backbone of the capitalist system.

Yes, issuing cryptocurrencies, which are essentially another form of security without the ownership rights, should be regulated. But carefully.

Bitcoin and other cryptocurrencies will sooner or later unleash the proverbial animal spirits of the free market. Huge wealth will be created and later much of it destroyed, much as during the technology dot-com bubble. But the cryptocurrency infrastructure will remain. And on this base many new, emerging, small technology firms and companies from other industries will step on and change the world. Capitalism, at its best.



Analyzing individual cryptocurrencies investments issued by companies is actually much akin to common stocks analysis. The investor has to read the balance sheet, income statement, the cash flow statement, the annual report and all the news concerning the particular company that has issued the cryptocurrency or the common stock. On top of that, the investor should watch for the general adoption of cryptocurrencies which would also influence the value of the particular cryptocurrency in question. What is more, the investor must also consider the psychology of the market participants. Many a times investors focus on a stock mainly for psychological reasons which drives the stock's value higher. In short, the investor must forecast the other investors' perception of the individual cryptocurrency he is considering investing in, so he or she can estimate whether the value of the cryptocurrency will increase.

All this requires significant effort and I would argue that analyzing cryptocurrencies investments is actually more difficult than analyzing common stocks, because the factors that have to be taken into account are simply more.



Bitcoin and other cryptocurrencies' liquidity is the missing link for now that prevents a larger scale adoption of cryptocurrencies. Cryptocurrencies' liquidity depends largely now on pension funds and other large asset managers entering the cryptocurrencies market. There have been some news reports that several small pension funds and asset managers are preparing for investing in cryptocurrencies.

The main early adopters of cryptocurrencies are people working in information technology and finance. Technologists are natural early adopters of everything new, because technology is nothing less than a way to create new things. People working in banks, brokers, asset managers, pension funds, hedge funds and insurance companies are natural early investors in Bitcoin and other cryptocurrencies because cryptocurrencies is an exciting new asset class which holds the promise of increasing wealth significantly. Actually information technology and finance are the industry leaders of our world. And Bitcoin and other cryptocurrencies are financial information technology or fintech.

The blockchain algorithm underlying Bitcoin and other cryptocurrencies is nothing short of a revolution. It is a not so complicated hashing algorithm, but it actually provides for distributed decision making, which is nothing short than democracy. The blockchain algorithm will profoundly change many industries, provided that human beings are prepared to share power.

I forecast that Bitcoin and cryptocurrencies' market capitalization will, barring a shocking, black swan event, will one day surpass global Gross Domestic product which is now around 80 trillion USD.