This is the second and final part of our overview of the crypto evaluation process. If you haven’t read the first one, you can check it out here.
Another important factor to consider when assessing the legitimacy and potential of any coin, is does it solve a real-world problem.
Many of the promising coins offer a real solution like anonymity, speed of transactions or validation.
“In fact, if it solves a big enough problem, then potentially billions of people could buy it. On the flip side. If a currency doesn’t really solve any problems, then it’s useless and therefore has no real value”, Altucher says.
Smart contracts, underpinning the Ethereum blockchain for example, are a major tool for validating data and events such as transactions. Some entrepreneurs have started using them in lieu of notary or other public services.
Earlier in 2017, Michael Arrington who co-founded tech news site TechCrunch bought an apartment in the Ukraine for $60,000. Unlike any other property purchase however, the deal was validated through a smart contract, reportedly becoming the first ever real estate to be bought and sold on the blockchain.
Privacy is another asset that people are going to value more, the more scarce it is becoming.
“A lot of computing power and software has been put in place to make sure that the more every government strips you of your privacy, the more valuable a cryptocurrency becomes”, Altucher who has a PhD in Computer Science from Carnegie explains.
“This is why Bitcoin in particular has potentially limitless demand. Especially once entire countries, countless retailers and the central banks start getting behind blockchain. I’m so confident in this I can all but guarantee you Bitcoin is not going to stay at even $5,000 a coin. It’s going to be $200,000 a coin.”
Services like the ones above are a great example of limited supply and unlimited demand for a solution that makes people’s lives easier. There is always going to be demand for anonymity, privacy, speed, transparency, notary services.
Many of the legitimate currencies offer such services. On the flip side, there are numerous currencies which rather resemble a multi-level marketing scheme with no real underlying economic value.
Three major conditions
Yet, to witness a true crypto revolution, we need to see a few major events, Altucher thinks.
“First, some country will probably replace their paper money with a cryptocurrency. This could happen as soon as a few months from now. (…) All it takes is one country to convert all their money to crypto, and cryptos take over the world”, he says.
As a second precondition, we need to achieve a critical mass of retailers adopting cryptocurrencies as a means of payment. This is also already happening on a different scale. Earlier in 2017, as many as 300,000 retailers in Japan started accepting bitcoin thanks to a partnership with Japanese bitcoin exchange Coincheck.
To put things in perspective, only in the US, there are almost 4 million retail stores. The possibilities are unlimited.
“Once you see a few million stores accepting cryptos, then we’ll reach another point of no return”, Altucher sad.
A third major factor for cryptos to go mainstream would be a favorable stance on the part of major institutions throughout the world, a process that has also already begun.
Again in Japan, the government decided to drop the 8% consumption tax on bitcoin transactions. Australian government, in turn, abolished bitcoin double taxation.
Back in August, UBS and a few other world banks started an initiative to enable payments and settlements on the blockchain. Consequently, names like Barclays, HSBC, Credit Suisse, the Canadian Imperial Bank of Commerce and other major players joined the project.
How to trade them?
After weeding the right cryptos from the bad ones, an investor needs a sound investment strategy to trade them effectively. You want a small portfolio of them and the ability to manage the portfolio in the right way to be able to maximize its value. Again, cryptocurrencies are extremely volatile which makes it harder to predict their direction. On the other hand, this offers great opportunities.
A sound strategy includes a proven crypto allocation model, taking advantage of the arbitrage opportunities and compounding gains with active trades with the best new cryptos.
To this end, Altucher is launching a crypto research service in partnership with entrepreneur and author Kamal Ravikant, brother of AngelList founder and crypto-entrepreneur Naval Ravikant.
Given the spectacular performance of cryptos in just a few years, expectations of Bitcoin and other superstars’ prices rising manyfold, world institutions adopting the blockchain and millions of buyers jumping on the bandwagon, the cryptoverse looks more sound and promising than ever.
Including cryptos in your portfolio has turned form a niche geek fashion to a profitable investment that has changed the lives of many people. Both for good and bad.
Yet, with the latest volatility, unseen growth and speculative nature, cryptos are and will remain more of a gamble than a proper investment.
Execute with caution.
You’ve been warned.