5. Investing in cryptocurrencies.

Discovering the industry, what to invest in & why.

Crypto is a new industry, and new people are entering the space every day. The most probable time to discover and start hearing about Bitcoin and Crypto is right at the top of bull markets, where hype, greed and euphoria are at their absolute peaks. These are the most dangerous times to invest in. Yet, everyone makes that mistake, the fear of missing out kicks in, and that leads to these massive price rallies at the end of bull cycles.

If you have not realized yet, the crypto market goes through massive bull and bear markets that last years, volatility is very high, potential returns are huge, but so is the risk; crypto has made poor people rich and reckless people poor. So far, it’s been a story of smart money and dumb money. The smart money buys low and sells high, the dumb money buys high and sells low, that’s fear and greed.

Conservative & traditional investors will tell you that crypto is a craze, a mania, a game, and a scam that you should not invest in, they are wrong. Yes, you can lose 90% of your money if you do the exact wrong thing of buying at all-time highs and selling at local bottoms, but if you had bought $10 of Bitcoin every day from January 1st 2014 until today (September 28th 2021), your $28,250 investment would be worth $1,330,000 today. The point is that Bitcoin trends up with time, and there’s probably nothing stopping the price from continuing to go up in the long-term. Everyone who bought at all-time highs got bailed out by simply holding.

However, before buying anything, personal research is always required; you should never invest in something only because your friend told you so. Listen to people, have an open mind, evaluate your options, and take a decision you’re a hundred percent convinced about. Having an open mind is the key here; you have to consider all the possibilities. I am personally deterministic about one thing only: crypto trends up with time. I explained my reasons earlier and I’m completely convinced about it. I could be wrong, but I don’t believe I will be. However, many people who discover Bitcoin when it’s at an all-time high try to find “the next Bitcoin”. This is an extremely risky strategy to take, as there hasn’t been any coin who has shown any signs of slowing Bitcoin down, I explained why earlier. Bitcoin also has a way of reminding the market that it is the king, and we will probably see that right now in Q4; do not be surprised to see BTC go parabolic while alts do nothing, because it happens every time. When BTC calms down, alts generally follow.

Here are some personal recommendations for crypto beginners:

(Not Financial Advice)

- Own Bitcoin before owning any other coin.

- Own Ethereum at #2. If it’s not #2, the only reason should be that it’s your #1.

- Owning anything else is a risk. Take that risk, but carefully.

- Buy at relatively low prices, either when the media is not talking about it, or calling it dead.

- Owning more than a dozen different coins is useless.

- The bigger your Bitcoin percentage is, the safer you are.

- An investment in any coin that is not in the top 50 should come from your casino budget.

- No one ever went broke from taking profits.

I always give emphasis to Bitcoin, because so far, Bitcoin has stood the test of time. Take a look, here are the top 10 coins from January 2014:

- Bitcoin

- Litecoin

- Ripple

- Peercoin

- Omni

- NXT

- Namecoin

- Dogecoin

- PTS

Bitcoin, XRP and Dogecoin are the ones who survived to the current top ten:

- Bitcoin

- Ethereum

- Cardano

- Binance Coin

- XRP

- Solana

- Polkadot

- Dogecoin

- Uniswap

- Avalanche

The only coins we’re almost certain will be here in 2030 and beyond are Bitcoin and Ethereum, the rest are risky bets. Again, I explained my reasons earlier.

Any crypto portfolio that is less than 60% Bitcoin – Ethereum is an aggressive and risky portfolio.

Cycle Theory & Bitcoin Return on Investment

At the end of the day, the goal is to make money. How can you make sure that the markets don’t eat you? Historical data is your friend. By historical data, I mean market cycle tops, market cycle ROIs, market cycle length…

This part will focus on market cycle theory using historical data from Bitcoin. Market cycles start when Bitcoin is at its lowest price between two peaks. We can identify price peaks when Bitcoin reaches a certain price and does not surpass that price for many years, which is how we identify bear markets. For example, when Bitcoin hit a price of $19,800 in December of 2017, it crashed 85% in one year and we did not see that price before December of 2020. $19,800 was the peak of cycle 3, and $3120 was the bottom that followed it (the lowest price that we’ve seen after the peak). Currently, we are in cycle 4, and $3120 is the start date of cycle 4, because it’s the lowest point between cycle 3 and 4.

Here are Bitcoin’s most important data points using daily prices and dates:

Bitcoin’s first cycle: (July 2010 – June 2011)

Lowest price (Start of cycle): $0.05

Highest price (Cycle top): $31.9

ROI: 638x

Cycle duration: 48 weeks

Cycle 2: (November 2011 - December 2013)

Lowest price: $2.05

Highest price: $1,237.70

ROI: 603x

Cycle duration: 106 weeks

Cycle 3: (January 2015 – December 2017)

Lowest price: $181.00

Highest price: $19,423

ROI: 107x

Cycle duration: 152 weeks

Cycle 4: (December 2018 - Present)

Lowest Price: $3,190

Highest Price so far: $63,590

ROI: 20x +

Cycle Duration so far: 148 weeks and counting

If we assume that the top is not 63k for this cycle, the duration will certainly be longer than the previous cycle, as we’re still far from the all-time high, and far from the next top.

These data points are here to show that the bitcoin price has shown two things with each additional cycle: a lengthened cycle duration and diminished returns. We do not know what the crypto market will be like in the future, we can only speculate. However, the diminished returns theory is very logical, as it takes exponentially more volume to move markets as the prices increase. If we were to apply cycle 2’s return and duration starting from the cycle 4’s bottom (and start), Bitcoin would’ve traded at $1,939,500, at the end of 2020. This is 60x from the real price at the time, $32,000. A $2 Million Bitcoin price puts its market cap at around 38 Trillion Dollars, maybe it will get there one day, but certainly not in a span of two years.

Staying safe from the markets

The best way to invest into crypto is to be cautiously optimistic. My best guess for this cycle is a Bitcoin top between 130k and 220k sometime in 2022, that’s the best I can do as it’s practically impossible to time the top, so it’s always a good idea to take profits as it goes up. If you feel a crazy urge to buy Bitcoin after it has gone up for months, then you’re too late to the party. The good news is, time is on our side, because Bitcoin’s fair value will keep going up with time. If today’s fair value is around 20k, it will be at around 50k in a couple of years, but this means that right now the market is in an overvaluation zone. In the past Bitcoin has extended well beyond its fair value, and will do so in this cycle, but as time goes by, Bitcoin’s volatility will decrease, as more and more big investors will enter the market without exiting. A simple rule to stay safe from any big losses could be to gradually buy Bitcoin at 50% to 80% below its previous all-time high, as we’ve seen it lose over 80% of its value after each major peak.

People calling for a 500k Bitcoin next year are too optimistic in my opinion; investors who got in at 5k, 10k, 30k will happily sell a nice stack well before 500k, and institutional demand for Bitcoin will probably not be able to hold the selling pressure from the big holders (or whales).

Mainstream institutional demand for Bitcoin is coming, especially when the SEC approves the Bitcoin ETFs (for the US) that are on hold. The important thing is to take a rational decision when the time comes, because new people will get in on the hype train, and it will drive risks way up. These new people will be the ones holding the coins when the market eventually crashes again, and it will be painful, so try not to be a liquidity provider when the price peaks.

Keeping your coins safe

Anyone with a big investment in crypto should own his keys. Not your keys, not your coins. New people usually keep their coins on exchanges, which are at risk of hacks or system failures; it’s best to transfer coins out to Cold Storage, using Ledger’s crypto wallet for example . Having a cold storage wallet means that you own the keys to access your crypto, which means that you own your crypto. When you leave coins on your exchange’s wallet, they are actually stored in the exchange’s own Cold Storage wallets. For small investors (say under $1000 or $3000), blockchain transaction fees are a problem, so it’s better to take the small risk and keep them on the exchange, assuming that the exchange itself is a safe one.

How institutions invest

On October 7, 2020, Square, Inc. purchased approximately 4,709 BTC at an average price of $50 million. They purchased Bitcoin

Over-the-counter with a bitcoin liquidity provider, negotiated a spread on top of a public bitcoin index and executed trades using a Time-Weighted Average Price over a predetermined 24h period with low expected price volatility and high market liquidity, in order to reduce risks associated with cost and pricing.

Square, Inc. stores its Bitcoin in cold storage custody, and maintains a Crime insurance policy to protect against internal or external theft/loss of their coins. However, there are other ways for institutions to invest, they can use third party providers like BitGo, Coinbase Trust, or Gemini that are readily available for those looking to outsource the custody of their coins.

Government crackdowns on crypto and some personal predictions

This is a very important topic, especially for the older generations who do not fully believe in crypto. Crypto is a sensitive topic for governments, as it’s a move away from government control. Governments control Banks and Banks control Governments. China was one of the first countries to “ban” cryptocurrencies in order to “protect” investors. We all know that China wants absolute authority over its people, which is why they are not in favor of decentralized systems. The Western countries are different, they also want control over its people, but they’re aware and afraid of damaging or stopping innovative technologies. Like we said earlier, crypto is inevitable no matter who bans it, shutting down crypto is like shutting down the internet. The last time China “banned” Bitcoin (they banned it 7 times already), the price did not move. If something gets banned more than once, it means that the previous ban did not work.

Additionally, in the US, the SEC Chair, Gary Gensler, recently labelled Bitcoin and Ethereum as a commodity after explaining that they’re sufficiently decentralized to be seen as commodities or store of value assets. He also labelled other cryptocurrencies as securities, which is where the next crypto debate in the US will focus on. I personally cannot argue against what he’s saying, as this would contradict my previous argument about alt-coins being very centralized compared to Bitcoin and Ethereum. This doesn’t mean that another cryptocurrency cannot emerge from the pack and become fully decentralized, but it seems unlikely in my opinion. Federal Reserve chair Jerome Powell also recently stated that the US government does not intend to ban cryptocurrencies, which is very promising news for the people.

Behind all the fear, uncertainty and doubt that mainstream media outlets provide us on crypto and governments, it remains to be seen what action governments take on crypto. My speculation is that the US will regulate it in a strong and positive way, because a lot of institutions are waiting for the government to start properly regulating the industry, which means that regulation is positive news for Bitcoin’s price. Anything that heavily impacts the public sphere will have a set of rules and regulations attached to it, and crypto is no different. I could be wrong but time will tell.

Let’s say we’re now in 2030, I can totally see a new law saying that anyone holding more than X amount of Crypto in cold storage is required to declare it. Maybe we wouldn’t even need to declare crypto holdings, but only our crypto addresses, because once you have someone’s address you can see all the activity. This would be very annoying, without a doubt… but I don’t see how this scenario does not positively impact prices.

El Salvador’s Bitcoin adoption and who could follow

El Salvador is the first nation to adopt Bitcoin as a legal tender, meaning that it’s now a currency declared by law to be valid for all products and services in the country, as well as for the payment of debts. This was bound to happen, and I speculate that eventually, all countries will hold Bitcoin in their treasury, as they do with Gold today. What I don’t like about El Salvador is that their president is using Bitcoin to gain popularity, and he’s imposing it on his people. Anyway, not my country, none of my business, right?

Currently, Paraguay and Brazil seem like the ones who will be next, this comes to no surprise as these countries suffer from US dominance. We should also pay attention to African countries, as they have the most to gain from cryptocurrency adoption; they have hundreds of millions of people with no access to banks. Crypto is already doing a massive impact in Africa; Nigeria is the biggest crypto user, with over 30% of the population adopting the technology.

How can we preserve wealth for next generations?

Bitcoin is the hardest asset ever created, it’s indestructible and it can last for hundreds of years. It is also hard-capped at 21 Million coins. It is 100 times if not a million times better than Gold. Bitcoin is harder, stronger, smarter and faster than Gold. It is what steel is to masonry for the traditional financial system. While both are store of value commodities, the gold supply increases by 2% every year; the Rule of 70 says that every 35 years the gold supply doubles, which means that every 35 years you lose 50% of your share of the pie. With Bitcoin, you get to keep it all; your share of the 21 Million coins will never change. The Bitcoin network is an ever-improving network that is designed in a way to never go offline, with a system that rewards anyone that helps make it work.

Some people like to compare Bitcoin to Myspace, the first social network that ultimately failed. What they fail to realize is that Myspace flamed at $1 Billion in Valuation, Bitcoin is already at $1 Trillion. Bitcoin is the Facebook of closed digital monetary systems; it is software that is eating money. We could even argue that Bitcoin is a social network, as it relies on people to function. Just like other social networks, the whole network benefits from every additional user, which gives Bitcoin holders an incentive to add users to the community. It is the same for alt-coins but as we said, none of them are sufficiently decentralized apart from Ethereum.

Now let’s compare what we said against investing in equities: equities are liable to fiat currencies, because their valuations depend on future cash flows in fiat currencies; add to that the property tax, income tax, regulations, tariffs, trade, customs, and a monetary supply that increases by 7% every year.

Now comes the important question: if you want to preserve wealth for 100 years for the next generations, how are you going to do it? Here are the options and the risks:

· Real Estate: Property tax, unmovable, destructible.

· Equities: Technological innovations, health of the economy, taxes, destructible.

· Gold: Inflating supply, hard to move, almost indestructible.

· Treasury Bonds: Lowest return on cash, debt defaults.

· Cash: Ever-inflating monetary supply, hyperinflations.

· Bitcoin: Yet to be discovered, indestructible.

What’s your pick?!