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Cryptocurrency Economics Investing

These Markets Make Me Nervous – But I Still Don’t Want to Miss Them

I read something the other day that was very interesting. It was talking about how the trade war and tariffs and political scandals that should be rocking the market daily – simply aren’t. The reason, this article said, was that the money in the market which was scared or nervous had already left.

Think about that for a second.

It means that the money that is still in the market is either sure that the markets will recover from negative news or that it is not concerned with negative news and holding on with a longer term perspective. I’d like to offer a different and much more dangerous perspective: the violent rises and falls of the stock markets since Spring of 2018 have made many investors more gun-shy about losing out on gains following dips, than on losing out on dips. It means that the risk tolerance for the market as a whole has gone much higher. Personally, I think that the Robinhood App and the violent rise and fall of Bitcoin have a lot to do with it.

Robinhood and Bitcoin in tandem have brought an entire new generation of investors into the markets. I remember hearing a seasoned trader in January say something like “I don’t know where this volume is coming from, but these traders are absolutely stupid” because the conventional rules were being broken by a large number of traders.

Let me break it down. Bitcoin bubbling in late 2017 and early 2018 brought millions of mom and pops, college kids, mechanics, builders, waiters, house cleaners, and other non-traditional investing types into an ultra-high-risk trading environment where dreams of becoming debt free, financially independent, or filthy rich were born and crushed. For those who took part in the 80% rise and 90% fall of Bitcoin over the past year – seeing a stock swing 7% is nothing. Seeing a stock swing 20% is almost nothing.

Those same bitcoin losers (and I’m a bitcoin loser as well, but time will tell if that stays the case) probably found the Robinhood App the same way I did – through the fact that Robinhood opened up to trading cryptocurrency AND stocks on the same phone app. So, where is the money the Robinhood traders are trading with coming from…there are a few possibilities.

1) From their bitcoin gains

2) It’s what is left after their bitcoin losses

3) They have borrowed, used student loans, taken out mortgages

4) They have closed down other broker accounts, 401ks, IRAs, or are using savings

Any way you look at it – this is not the same conservative money that looks to build 6% annually and sells a loser after 7%. Because they are in the market (along with trading bots) those strategies are no longer as effective as they once were. The massive market swings trigger buy and sell orders, sweep through stop losses, and leave traders who aren’t paying attention with overpriced shit on their hands or with selling at a loss and then watching a 250% wild upward swing…which brings me to the bots.

The vast majority of trades on all of the markets today are conducted by trading bots which conduct millions of trades each minute (or faster). There is no human way to beat the bots except through playing it safe and getting lucky.

So, with all of that, what scares me about these markets?

It’s the human traders using the app with their finger on the trigger. They may be exhibiting a strong risk tolerance, but they are human and eventually…somethinig is going to collectively set them off…when it does, the bots will take over and the losses will be massive and nearly instant. Yes, the markets will shut down…but as we saw with Tilray yesterday…that doesn’t necessarily solve things. Imagine what happened there, happeneing on a market wide scale.

These markets are terrifying…but honestly, there are huge gains to be made – despite that.

I’ve shifted my investing strategy. I’m not day-trading or trying to lock in short term gains. I look at a company and try to imagine where it will be in twenty years. I look at what it offers in growth between then and now and what it currently offers in dividend and yield. That’s where my money goes. At the moment there are three very exciting places I have my money parked.

1) IBM – big blue has become a world class innovator while the innovators like Google and Facebook have become boring and conservative. IBM offers one of the best dividends out there and is constantly innovating in new areas of growth.

2) Gene editing. There are three companies leading the charge here. Crispr Therapeutics, Editas Medicine, and Intellia Therapeutics. This is the area where disease gets solved, aging gets set aside, and humans potentially take the next step in evolution

3) Industrial Automation. The workplace is being automated. There is nothing that can be done about that. Brookstone, Holisys Automation, and ABB Group are the three companies currently leading the charge on this world changing shift.

I also believe that Amazon will continue to dominate and grow like the Borg and that electric cars with self driving technology will take over the automotive industry. Tesla may be a dead man walking but GM, Volkswagon, and Toyota are stepping up and newcomer NIO out of China is one to watch closely.

I’m putting my money in these areas now and in twenty years, I expect that I won’t be disappointed.

Now, a word about Bitcoin and blockchain. I still believe in Bitcoin. I think any money put into it before 2020 will see massive returns. I also believe that there are a number of great use cases for blockchain technology – but the more I’ve learned about the current run of projects – the more I believe that there is better coming and the money I’ve put into them may never be recovered. The hype got me…now, whether I get lucky from that – that’s just a matter of luck and fortitude. I’m not going anywhere with my losses…and it would be nice to see them turn into winners. Only time will tell.

 

Categories
Cryptocurrency

Bitcoin, Ethereum, Litecoin and Altcoins – What Are They? How can you buy and sell them?

I’ve made it no secret – I think the banking and financial systems of every country on the planet are corrupt and need to be replaced. The problem, of course, is that whatever you replace them with has the potential to also be corrupt as long as you are relying on trust. This is why I love Bitcoin and cryptocurrency. Trust is not an issue – or at least it shouldn’t be.

From the moment that Satoshi Nakamoto released his bitcoin white paper on the internet, Bitcoin has existed without the need for trust. Satoshi,  the almost (or perhaps completely) mythical creator and father of bitcoin – concieved of Bitcoiin in the wake of the 2008 financial crisis when financial institutions had once again clearly shown that the entire financial system was completely untrustworthy.

Bitcoin was born during the last economic crisis when someone (or a group of someones) saw the need for a break from trusting government and financial institutions to take care of the needs of people. Blockchain (the technology bitcoin is built on) works like this – a group of unrelated individuals (miners) use complex math to encode (crypto) multiple transactions into a permanent ledger which cannot be changed or altered and is not owned or operated by any individual entities. Blockchain is built to eliminate the need for trust. For example in regular finance: I write a check to you. You take the check to the bank. The bank takes my money and puts it in your account. We have to trust each other and we have to trust the bank – the middle man, the intermediary. Blockchain takes the bank out of the picture and makes our transaction a permanent part of the record. There is no need for trust – it is trustless. It eliminates the need for banks as well. Bitcoin is the currency built on top of that chain of transaction blocks (get it? Blocks of transactions in a chain where each transaction is necessary to validate every other transaction – a blockchain).

Ethereum (ETH) is a newer blockchain based computing platform developed by Vitalik Buterin which allowed for scripting on the network (i.e. computing and building applications aka smart contracts).

Litecoin (LTC) is a cryptocurrency started by Charlie Lee. It was a sort of clone of bitcoin with some improvements to make it faster and cheaper to conduct transactions. Lee said it was silver to bitcoin’s gold.

At this point, you now know as much or more about bitcoin and cryptocurrency than 90% of the population. It’s very early in the game. As of writing this, there are nearly 2000 additonal cryptocurrencies. Many (most actually)of them are built on the Ethereum protocol and are called ERC-20 compliant – which means if you have an ethereum wallet – you can use those tokens with it. Some well known examples are Golem, 0x, Basic Attention Token, and Ziliqa. Each of them has their own use cases and eventually will have their own blockchains.

And that is the key, each of these projects eventually has a blockchain of their own. Some well known examples of other coins with their own blockchains are Ripple, Digibyte, EOS, Stellar, Cardano, Bitcoin Cash, Tron, and Neo. To be clear, both Litecoin and Ethereum area also coins. Coins have their own blockchain, tokens use the blockchain of another project. So there are coins on the Stellar, Neo, and Tron networks – as well as on Ethereum.

Bitcoin is the one and only first blockchain project. It has a founder but no hierarchy, no controlling body, and no central authority. The Bitcoin Foundation manages governance – but, as the case with Bitcoin Cash (and Litecoin among others) when there is a schism between the nodes – it is possible to ‘fork’ and thus create a new coin with new rules. Bitcoin Cash was born of such a disagreement among miners. The Bitcoin Cash people claim that they are more closely aligned with the original vision of the Bitcoin white paper. The Bitcoin (aka Bitcoin Core) miners say that Bitcoin Cash is a centralized monster that distorts the vision of Satoshi Nakamoto.

Within all the coins above, there are privacy coins, function coins, and exchange coins. Privacy coins like Monero and Dash are built to hide the identity of the user – something which bitcoin is known for but actually doesn’t do. Function coins allow you to use the coin for a specific funtion – a good example is Docademic (an ERC-20 token) which allows you to purchase online medical advising for tokens. Exchange coins such as Binance Coin (also ERC-20 token) allows you to purchase token and pay fees with your tokens.

Coinbase, the largest exchange has not issued their own coin – yet – maybe they never will. Binance is the main exchange for most alt-coins.  A third place you can buy and sell crypto is the phone based stock trading app RobinHood. The difference between the three is that coinbase is the most highly regulated and probably the most hackproof – you can buy only Bitcoin, Litecoin, Ethereum and Bitcoin Cash on Coinbase at the moment, though Ethereum Classic (a fork of Ethereum) will be coming soon and Coinbase has announced that they are exploring adding Cardano, Stellar, 0x, Zcash, and Basic Attention Token sometime in the coming months. You can buy for fiat currency, sell for fiat currency and send/recieve to and from other wallets at Coinbase.

Binance does not have fiat currency enabled and has many many more coins and tokens. The catch is, you have to fund your Binance account with cryptocurrency from elsewhere and if you want to change for currency, you need to go to Coinbase or another fiat enabled exchange. Robinhood allows you to buy and sell a basket of cryptos but you cannot transfer to or from and you do not control the private keys of your wallets – thus – it eliminates what many consider to be the most important feature of cryptocurrency – trustlessness.