Before you get mad about the picture, those are the wilting tulips of my skepticism. This post is about how I came around to acknowledging cryptocurrencies as an asset class after a long period of resistance, by coming to terms with what qualifies for an asset and putting aside some of my biases with respect to the crypto space.
I think if you’re a skeptic you may find some of the below analysis helpful, and if you’re a crypto enthusiast you may be happy to see that I’m now on-board and invested. This post comes with a couple of caveats: 1) I am not suggesting that crypto assets are priced correctly or are any less prone to a crash now that I’ve joined the party, and 2) I may well be a contrarian indicator that has put the top into the crypto market! More on those points below. Let’s start with how I came around to seeing the crypto light.
A Legitimate Asset Class
Bitcoin is an asset, and cryptocurrencies are an asset class, period. For a long time I refused to acknowledge this because I didn’t see much utility for these products from a personal perspective. I didn’t transact with cryptos or have a desire to use crypto assets for wealth storage. But that in no way invalidates cryptos!
It is sufficient that others see value in cryptocurrencies for the asset class to be viable, whether that value is connected to certain use cases or not. And it was really hard for me to accept this because I was not seeing the value of cryptos. This is simply a personal bias, and although I explored the opinions of crpypto enthusiasts, I failed to be as open-minded as I should have been. The market, clearly, is speaking, and is finding value in crypto assets, so they do have value.
There are a lot of asset classes that I don’t personally appreciate, but that have value in the market. For example, beanie babies, baseball cards, jewelry, abstract art, and digital goods collected in computer games. Some would add tulips with and without breaking virus, and crypto kitties to that list, but I do value tulips to a reasonable degree (especially as a perhaps-too-infrequent gift for my significant other), and I’m comfortable enough with my masculinity to admit some curiousity about crypto kitties!
My (or any individual’s) lack of appreciation for certain items doesn’t make those goods worthless, far from it. Many seemingly arbitrary assets have a good deal of staying power and will hold value and vary in value for centuries. Others will experience rapid value rises and declines. Others may have relatively stable value throughout time. Who knows what the staying power of cryptos, or of any crypto in particular, will be? Bitcoin may be usurped by litecoin, and litecoin by dash, and so forth. Regardless of the asset in question, for so long as and during the period of time that humans ascribe value to it, it will be a legitimate asset class.
Collectibles are no less valid than stocks and bonds, regardless of who is promoting them, so long as the market confirms value. The fact that some bitcoin and crypto enthusiasts are young, or emotional, or aggressive, or fanatical, or even investing for all the wrong reasons, is completely irrelevant to an objective analysis of whether crypto is an acceptable, investable asset class or not. In coming to this realization I have been forced to expose, come to terms with, and put aside some of my own biases, and for that I’m glad to have been introduced to the crypto market.
Use cases and utility certainly matter, and it is presumptuous to assume that the use case of a stock is better or worse than the use case of a crypto, or even a crypto kitty. The use case is different, and may be of different magnitude and duration, and so long as the market confirms a value for the use case, it is as legitimate as any other asset.
Litecoin and Ethereum, but no Crypto Kitties
I now officially own some litecoin and ethereum in my Coinbase account. I’ve also played around on the Crypto Kitties website, but I’m not ready to take the plunge, although I can understand the pull of these digital collectibles, even though I wouldn’t buy a rare kitty for a 5 or 6 figure sum. But maybe I’d feel differently if I’d made 7 or 8 figures in the crypto boom already, in which case I’d likely have a completely different understanding of the digital goods market. If you use Coinbase, make sure to do most or all of your trading on the integrated GDAX platform using limit orders to minimize fees and costs.
Why did I choose litecoin and ethereum rather than bitcoin? Because utility and use cases matter more to me at the moment than the staying power of bitcoin and its potential as a store of value, though I can appreciate those points as well. Because of the rapidly increasing adoption of litecoin and ethereum in commercial transactions, I feel more comfortable owning these cryptos at this time. Bitcoin, on the other hand, may be shooting up largely due to speculation or its potential use as a store of value, and its proven security, because there has been only a relatively small increase in transaction volume this year. Play around on bitinfocharts.com for more on this. You can superimpose the different coin transaction volumes on each other, pull up nifty pie charts, and so forth.
If you’re a crypto bull, how nervous should you be that I’m entering the space? Extremely? People like to say that bull markets die when bears finally capitulate, and vice versa. This is argued to be the case because this capitulation represents the last of the holdouts finally entering a market and thereby eliminating any so-called “sideline” demand or supply. (I’ll do a post on the nuances of the money on the “sidelines” term in the future; it’s not nearly as straightforward as its generous use in financial media might suggest.)
I may very well be a contrarian indicator, signaling that the market is about to turn! If that is the case, I am very sorry to have put the top into your market! On the other hand, if a skeptic like me is finally acknowledging that I need to be more open-minded about cryptos as an asset class, and accept the (possibly) non-correlated upside potential that investing in this space may provide, there could be a legion of untapped investors out there who will soon see the litecoin light!
Do I still think that the crypto market will experience a crash or massive correction? You bet I do! And that crash can begin later today or after the total crypto market cap is well into the trillions of dollars. We may see a 90+% decline, and then a new order of surviving cryptos following the crash. So make sure you’re aware of that possibility. I’m using play money to invest in and learn about the space, and to try my hand at transactions and perhaps even acquire some ethereum-powered collectibles.
As always, thank you very much for reading!
Great YouTube Resources
Here are some excellent and balanced bitcoin and crypto resources for your listening pleasure:
My go-to platform for Bitcoin, Litecoin, and Ethereum is Coinbase. If you use Coinbase, you can trade on the integrated GDAX platform using limit orders to minimize fees and costs.
My go-to platform for alt-coins is Binance. No fiat there, however, so you’ll have to transfer btc, ltc, eth, or other cryptos from another platform, such as Coinbase, to get started at Binance.
Buy me a coffee…or beer…or perhaps both by way of a coffee stout:
Disclaimer: All data and information provided on this site is for informational purposes only. It should not be considered legal or financial advice. You should consult with an attorney, financial advisor, or other professional to determine what may be best for your individual needs. I am not an investment advisor and this site does not provide investment advice. Also see the Disclaimer Page.