After watching Kodak shares triple in value after their announcement of their own cryptocurrency, KodakCoin, I figured this whole cryptocurrency buzz had reached a brand new level of irrationality. Alas, it seems the hype is far from over, and I must admit there is probably a degree of FOMO that anyone abstaining from investing in cryptocurrencies must be feeling. After all, when the value of a coin can skyrocket seemingly overnight, waiting to invest in cryptocurrency can seem like a grave mistake.
Besides, it seems every time I check social media platforms like Twitter, the only content I see surrounding cryptocurrencies goes something like this:
Fearing I was about to give into the cryptocurrency bandwagon and gamble a chunk of my money away, I did what anyone experiencing a high degree of cognitive dissonance would do; I read a bunch of articles that agree with me.
After reading said bunch of articles, I have come to a few conclusions about investing in Bitcoin or other cryptocurrencies and have decided to share my 2 cents. Is investing in cryptocurrency a good idea? What about investing in blockchain?
Let’s take a look!
To Invest or not to Invest – Blockchain Technology or Coins?
Sell shovels during a gold rush. That’s the strategy the wealthiest winners of the 1849 California Gold Rush adopted to strike it rich during the mad search for gold and influx of eager prospectors. After all, who actually wants to do all of that work or risk bodily harm (or their own money)?
That’s essentially the attitude I adopted several months ago when I first considered investing in cryptocurrency and altcoins. Rather than pick coins to invest in, why not invest in the technology behind the coins? Why not invest in the future of blockchain technology?
Cue Hive Blockchain Technology Inc:
One of the first companies I was told about as being a potential buy if I was looking to invest in the future of blockchain technology was Hive Blockchain Technologies Inc (HIVE). I will admit, I was very excited at first glance. The HIVE website states quite clearly on their front page that they are “Powering the future of blockchain computing” and that certainly sounds like a good thing.
Then, I took another look at their website, and read their corporate presentation. HIVE essentially talks about how mining in Iceland is awesome because, well, Iceland is cold, and how they have grand plans to expand blockchain technology and take over the world or some shit.
Then, after more reading, you’ll find that HIVE Blockchain Technologies was formed through a speedy reverse takeover of a mining company Leeta Gold for $11.2 million dollars.
HIVE then proceeded to rake in additional funding for the construction of mining facilities and also watched their share price be pumped up nicely by the fact that they joined the cryptocurrency hype at the right time.
Neat. But what about advancing blockchain technology and the future of all cryptocurrencies? Well, it seems HIVE is more interested in making their shareholders profitable than progressing blockchain. Considering that meddling Frank Giustra is involved with HIVE and is one of their backers, I’m not surprised.
Anyway, the point here is that just because a company promises to revolutionize blockchain and change the face of cryptocurrency, it doesn’t mean they’ll do much more than reverse takeover a random mining company, pump their stock price, and proceed to mine some Ethereum. If you do your reading, you’ll find there are plenty more examples of companies claiming to be proponents of blockchain, promising that they will strive to progress the technology, yet are nothing more than a rebranded mining operation.
There will be blockchain ETFS coming to Canada, and I’ll admit, they sound intriguing. Harvest Portfolios is currently attempting to introduce an ETF that involved blockchain technologies, which could allow investors a way to get in on cryptocurrency without having to spend many sleepless nights monitoring the price of Monero or whatever.
Harvest proposes that their Blockchain Technology Index will track the performance of issuers in both the large-cap blockchain segment and emerging blockchain segements. Companies included in the large-cap segment are required to meet certain criteria, including having a $10-billion market cap and being listed on a recognized stock exchange in North America.
The emerging segment also has requirements, such as having a minimum $50-million market cap, being listed on a North American stock exchange, and having “communicated a business strategy dedicated to the development and or implementation of blockchain technologies.”
Seems like that last part is right up HIVE’s alley.
I mean, they are listed on a North American stock exchange, and we already know just how dedicated they are to advancing the future of blockchain.
I’m not saying these new ETFs won’t be worth looking at. However, it is important to be diligent and read about the companies that could potentially be included in these ETFs, or any company you might be thinking of investing in. Just because an organization claims to be working on the future of blockchain, it doesn’t mean all that much.
What About Cryptocurrencies?
I have to preface this segment with saying that I used to own a whopping 0.004 Bitcoin…back in late 2017…so it was about $40 USD. Since then I have exchanged my miniature fortune for ARK, another cryptocurrency, and plan to ride the wave of growth to $60 USD or whatever so I can at least say I made a profit trading cryptocurrency.
In any case, I am certainly a biased (and novice) student investor who really only dabbled with cryptocurrency to avoid blowing my brains out or suffer an aneurysm due to rising FOMO.
But after reading more articles to reassure myself that I was not missing out on the next Yukon Gold rush, I was sent this article by The Reformed Broker to read. It covers two very important concepts: intrinsic versus market value and what this means for investing. I highly recommend reading the entire article.
If you do, you’ll see the argument made by guest posters The Unassuming Banker makes a lot of sense. If you ask the question what is the actual value of Bitcoin?
That might sound like a hard question to answer, but the truth is, there isn’t much value at all currently.
Think of market value as being determined by differences between supply and demand. When demand exceeds supply, price will increase, if supply exceeds demand, the opposite will occur. Intrinsic value on the other hand is the tangible value something provides, and this might or might not be the same as market value.
If a commodity or product experiences a rapid increase in interest or demand, the market value can creep above intrinsic value, or even climb far above it. Eventually the market price will return to what is a reasonable point based on intrinsic value, but that’s the nutshell of a financial bubble.
That’s where The Unassuming Banker, myself, and many others encounter problems with the intrinsic value of cryptocurrencies.
I’ve been blessed to live in Canada my entire life, and like most sensible people living in a stable country, I put my money in the hands of Banks and I don’t think twice about it. I save, I invest, and throughout this process I have the trust in the back of my head that I can go to a bank at any time and do whatever I please with my money (or access it online).
I also have the security of knowing I can go to the store and buy a sandwich for $5, and chances are, that sandwich will cost $5 the next day as well (and not some random amount of a fluctuating cryptocurrency).
Additionally, I’ve never had to worry about the need for anonymity, buying illegal goods, or a lot of fraud in my life. Therefore, the Canadian Dollar has been a trusty and reliable vessel for me to live and get through the day.
I realize that other cryptocurrencies are attempting to distinguish themselves from Bitcoin and provide some use. Ripple (XRP), for example, aims to act as an immensely quick payment network, allowing for a cost-effective way to transfer currencies around the world.
But by and large, there is no current tangible use for many cryptocurrencies, especially Bitcoin. The price fluctuates too greatly, transaction times are slow, and cryptocurrency as a domain is saturated with hundreds of coins presenting a lot of hype and not much else.
So, Where to Invest?
Now, I don’t want to say that blockchain isn’t useful, or that cryptocurrencies will never have a place in this world. A decentralized, anti-fraud ledger is a powerful tool, but investing in cryptocurrencies is NOT investing in blockchain. You can buy the coins, or you can try to profit from the companies that are planning on using blockchain to improve existing services or create something new entirely.
The only problem is that it can be difficult to find a company that promises to invest in the future of blockchain and actually delivers.
For the time being, I think it is worth keeping an eye on emerging blockchain-based ETFs. If you want to invest in cryptocurrency, I say go for it, but do not be fooled; buying cryptocurrency is not the same as investing in blockchain.
You may make money through buying and selling crypto, but you are playing a purely speculative game against other buyers and sellers. You are not investing because investments have intrinsic value.
For the time being, any money I can put away is going straight into the Vanguard S&P 500 ETF and staying put. The way I figure, if Apple, Microsoft, Amazon, or some other big player changes the world and benefits the U.S. economy through blockchain innovation, I can ride that wave a bit.
When blockchain ETFs are available in Canada I may diversify a small percentage of my holdings with them, but I certainly won’t be buying cryptocurrency any time soon.
If anyone has any comments or feedback I would love to hear them! I am by no means a very experienced or qualified investor, but I wanted to give my opinion on how I view the current investment options for cryptocurrencies and blockchain.
Tom is a 22 year old recent college graduate from Canada with a passion for side hustling, passive income, and marketing. This Online World is all about providing people with honest ways to make and save more money by using technology. To learn more about Tom, read his About Page!