Last month I wrote an article about the inevitable rise of Ethereum. Since that article the price has increased 700% and since the beginning of the year nearly 5000%. Ethereum is not the only cryptocurrency profiting. Many other currencies including Bitcoin are up hundreds of percents. This leads to comparisons to the tech bubble in the early 2000's and I am here to give my input on the possibility of a bubble and how you should go about investing in the crypto world.
No. There will not be a "crash" soon.
First, I want to get a few things straight. Investing in cryptos right now will still prove to be very profitable. Perhaps in the future, years down the road cryptocurrencies could become overvalued and result in a crash. Obviously along the way there will be certain coins that become obsolete and certain coins that will be worth multiple times their current value, I will discuss some of my favorite and least favorite towards the end of this article.
Now, during the Dotcom bubble the mindset was quite similar to the mindset of people in the crypto community. The belief was that any startup with a few good ideas and a website would be worth billions in the future. This was not true then and is not true now.
If you are a traditional investor and you opinion about the bubble cannot be changed than we are still in the very early stages of the bubble. Right now the entire crytpocurrency market cap per coinmarketcap.com is $112 billion compare that to the marketcap around the Dotcom crash ($1.75 trillion) this is still early. Two trillion could still be a lot smaller than the potential for this new market. Investing in Dotcom stocks was mostly just the United States, crytocurrencies are renowned for their global aspect of trade.
Most investors when they see 5000% returns in 6 months will assume something strange is going on and your natural reaction will be to assume the growth is due for a massive correction. The reason gains like this are completely feasible for ethereum, is was makes it fundamentally different than any other technology. It allows you to invest in the infrastructure of something that looks to revolutionize how finance, the internet, and business is conducted. Ethereum is a platform that makes the creation and implementation of decentralized applications astronomically easier than before. Rather then developing an entirely new blockchain, developer can implement their ideas onto a shared blockchain.
When investing in Bitcoin or Ethereum you cannot look at it like investing in a stock. A typical stock is valued by how well it can perform which is somewhat measurable. Ethereum has aspects similiar to valuing a stock but is not only a platform for development like the internet was for websites but it also contain a store of value that can be traded for every day items. It would be like filling up your gas tank with one share of NKE, no gas station will accept a stock as payment but more stores and businesses are beginning to accept bitcoin and ether transactions.
My Top Cryptos
Despite being up 5000% this year i would still highly recommend purchasing shares of ethereum. To me it is the safest and has the highest chance of mainstream adoption. There are countless articles talking about the many uses of the technology so i will spare you from that but in the coming weeks ethereum will pass bitcoin as the largest cryptocurrency by marketcap. This will result in major media coverage elevating the price to create an even wider gap ahead of bitcoin.
Golem is like airbnb for your computer, it allows individual or companies to rent out their computing power. The initial software being developed will allow CGI movies and videos to be rendered much quicker and cheaper than traditional methods. The Golem Network also allows developers to sell their own software straight to customers so improvement to the network are only limited to the creativeness of developers. More information about Golem can be found in my blog post here. One reason this is so high on my list is that within the next few weeks Golem will be releasing the first of four stages discussed in my previously mentioned blog post. With the news guaranteed to come with this release many new investor will take notice.
The Golem Network benefits three groups of people as indicated from their Whitepaper, which can be found on the Golem.Network website.
|Group||Golem Feature||Incentive To Participate|
|Requesters||Golem offers tools to execute computer-intensive tasks.||Requesters get access to affordable and scalable solutions, which combine hardware and software.|
|Providers||Golem combines and utilizes almost any kind of existing computing hardware.||Hardware providers get paid for providing and renting out their hardware.|
|Software Developers||Golem is a flexible platform to deploy and monetize software.||Software developers use Golem as a distribution channel, associated with access to hardware.|
Back to the Airbnb example, providers have incentives to list their house on Airbnb because they are not using it and will receive payments from requesters. Golem's interface makes it easy for providers to set prices and decide how much of their unused resource they are willing to rent out similar to how Airbnb lets you determine how much you want to rent your house for.
To understand price movements you will need to understand Golem's project timeline. Right now the Golem developers are working towards completing their first goal called Brass Golem, which includes many basic components to their end product. They estimated completion of this in their whitepapers to be 6 months which would place the release to this month, June 2017. The soon to be release of Brass Golem has already sparked more interest in the dApp, I expect when the actual release happens the price will jump up even higher, possibly to the $1 range.
After this month the next goal in the project timeline is Clay Golem, which includes varies components set to be released randomly between a 6 and 15 month from the beginning of the project (November 2016), the next stage is called Stone Golem with components being released 15-24 months from November 2016 and the final stage has estimated time of component arrivals ranging from 24-48 months down the line.
As you can tell Golem is very much in its infancy. Investing now has potential for enormous returns but with any new project there is also a great risk factor. Short term there is close to a guarantee to make positive returns, making Golem something you should consider immediately.
Augur is a decentralized prediction market that uses its token (REP) to help relay real information, such as the winner of the presidential election, to the blockchain. The event gets reported by asking the crowd, these reporters are taken into account and users who correctly predicted or told the truth are rewarded with additional REP tokens and those who lied or were wrong will lose their tokens. It will be the fundamental oracle for helping smart contracts fulfil themselves.
One reason why I am so interested in this project is that you can make money just from being knowledgeable about a subject. Augur's prediction market works like this: You buy shares in the outcome of an event that you know something about. The price of each share adds up to $1. If you buy a share in something at even odds you will pay $0.50 and if you are correct you will receive $1. Anyone in the world can ask a question by
An excerpt from Augur's FAQ page explains how the reporters are incentivized to regularly and accurately report outcomes like this:
"Reporting should be a fairly intuitive process, as most markets will have had time before the voting period to auto-resolve themselves (as rational actors will be incentivized to sell their losing shares before a market reaches zero value, leading most markets to have 99-to-1 odds at closing time.) If markets have not resolved themselves, this may require Reputation holders to do some Googling; but in such cases it is more likely the decision in question will have been poorly worded, undeterminable, or unethical, and thus reporters should mark the decision as such.
If Reputation holders fail to report on the outcome of events assigned to them during the reporting period, or report dishonestly, our system redistributes the lazy or dishonest Reputation holders' REP to those who have reported both regularly and honestly.
They can lose up to 20% of rep if they don't report each reporting period. If everyone else reports
accurately the "lazy" person will lose 20%. If there are some other lazy people, and some people who outright lied, you'll lose some, but a bit less than 20%."
To summarize, Augur works likes this. Someone creates a market asking the likelihood of a future event, an example being the winner of a basketball game. Now anyone in the world can bet on this event without the use of a trusted third party. After the event takes place holders of Augur's token, REP, may be designated reporters of the event. After the process of reporting takes place the originally betters will be rewarded or penalized based on their wager. The concept of investing in other people betting may seem strange and uncomfortable but that is one of the ways blockchain technology and decentralized internet can change how every day actions are perceived.
Some other tokens I find interesting but are still in early development are Aragon, SingularDTV, OmiseGO, Siacoin, Steem, and Iconomi.
Buying into Secondary Coins
Unfortunately, buying Golem, Augur and many other alternative coins involves one additional step that is not required from Bitcoin and Ethereum. When buying Ethereum it is as simple as setting up an account on a reputable exchange such as Coinbase or Gemini and purchasing with your debit card or bank account.
After purchasing Bitcoin or Ethereum you will need to sign up on a trading website such as Poloniex or Bittrex. These trading website will allow you to trade ethereum or bitcoin with many other secondary coins.
In order to begin the acquisition of Golem or Augur we will assume you purchased Ethereum (NYSE:ETH) over Bitcoin on the Coinbase exchange.
Next you will need to send your ETH from your coinbase account to the trading website you desire to use. This can be done by logging into Poloniex and clicking on Balances> Deposits & Withdrawals. From this page you may need to uncheck hide 0 balances then scroll down to Ethereum and click deposit. A message will come up read it and at the bottom it will say "Got it. Show me the Deposit Address. " Click "Deposit Address" and it will come up with a code (Example. "0x106797ee...").
Now you will need to go to back to coinbase and copy and paste the code from your Poloniex deposit address into the send/request tab on coinbase. Send your desired amount of ETH to the address and return to Poloniex. The transaction may take around 20 minutes but after that you're ready to purchase Golem (NYSE:GNT), Augur (REP) or any of the many coins listed on their site.
Disclosure: Keeping virtual currency on Poloniex or another trading website is unsafe as the websites are susceptible to hacks. If you have any questions about keeping your coins safe feel free to message me or comment on this article.
Advice for New Investors
I have a stake in many of these coins and I would gain something from readers investing in them so I encourage everyone to do research on their own and decide what they feel has a place in the future.
When learning about these coins and their applications key questions to seek answers to would be who are the developers? How involved in the community are they? Would the project be something I would use in the industry it focuses on? Did the company launch a token before the product or develop a product before the token sale?
These are just a few that help me decide how likely their future is. There are coins that seem like they have a great idea but the developers seem distant from the community which is a huge red flag for me. Something I also like to look at is when the token sale took place relative to the development. Right now the norm seems to be lying with funding your project and then developing. I believe this will begin to shift as projects start to fail. ICO's are very popular and very profitable which will bring shady people into the community looking to exploit the profitable trend so always be cautious with investments and if you are looking for something relatively safer stick to infrastructure, Ethereum.
Disclosure: I am/we are long ETHEREUM.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.